Property investors have long been aware of the benefits of buying property within a limited company structure, however the associated costs and processes have typically been considered prohibitive.
Applying technology to this challenge means it’s now possible to set up a limited company in a matter of minutes- as opposed to weeks- thanks to platforms such as GetGround, which was founded for the sole purpose of creating and managing companies to buy and invest in UK properties.
Let’s break down a few of the most critical elements related to owning property in a limited company.
The differences between owning property in a personal name and a company name
For investors, owning a property in a limited company delivers significantly more long-term advantages than in a personal name. One of these is a company opens the door to increased tax efficiency. When a property is purchased via a company, the owner (or owners) of the company can deduct mortgage interest from their UK tax bill. With personal ownership, owners receive only a basic rate credit. Owners can also take rental income more easily from the company by means of dividends or via owner loan repayments. Finally, owners will see lower capital gains tax on the sale of shares when exiting the investment.
Additional benefits include limited personal liability as the company is a separate legal entity, and the ability to buy and sell to other investors with ease. It’s also valuable when it comes to estate and inheritance planning, as company owners can more easily manage inheritance tax (IHT) and distribute shares in the property to their beneficiaries. More on this later.
How limited company structures work
Investment in a Buy-to-Let property operates similarly to that of a small business. Companies are built for business, so it’s natural that advantages arise from purchasing using this structure. It’s typically been prohibitively time-consuming or costly for investors (particularly those overseas) to set up a company via which to buy and sell property.
GetGround was created for the sole purpose of buying and investing in UK properties. Investors can use the platform to create special purpose vehicles (SPVs) which are specifically designed to be efficient for buying property. This is the only activity GetGround-created companies can undertake and ensures complete trust and transparency- critical for future sales of the property. Each GetGround-created company has 100 shares which are held among all the listed shareholders and can be split however the shareholders prefer.
How to set up and run a limited company
Using GetGround’s unique platform, investors can set up a limited company online in fewer than 30 minutes. This can be done remotely from anywhere, and the process includes the creation and opening of a brand-new UK limited company; registration with Companies House; company structuring and associated documentation; and the opening of a financial account. GetGround charges a one-time set up fee of GBP£500 and GBP£20 per month for the ongoing running of the company. For these costs, GetGround will undertake the role of company secretary and will manage ongoing administration; bookkeeping; tax returns; secretarial services; and will provide the registered office address. GetGround has no ownership or shareholding rights in any of the companies created on the platform.
Tax, estate planning and transfer of ownership considerations
Let’s dive a bit further into some of the key advantages. When it comes to tax efficiencies, during ownership there are two main advantages. The first is that owners can offset their mortgage interest against the income generated, as mortgage interest is typically the highest cost related to the property. This can lead to significant savings and reduce income liability. Secondly, it allows for a mechanism from which profits can be drawn easily from the company via dividend income or owner loan repayments. For non-UK residents, there is 0% income tax applied to dividend income in the UK.
Upon exiting ownership of the property, owners have two options, both of which will improve the performance of the investment. Owners can either sell the shares of the limited company or sell the property out of the limited company. In the first scenario, owners will pay a reduced capital gains tax. Additionally, the incoming buyer does not need to pay Stamp Duty Land Tax (SDLT) which creates additional opportunities for the seller, who will either have a price advantage in the marketplace or can better negotiate an increase in the sale price.
In the case of selling the property out of the limited company, there is no capital gains tax, simply a flat rate corporate tax which is currently 19%.
Finally, limited companies allow for better estate and inheritance (IHT) planning. Today in the UK, inheritance tax is 40% of your estate value over and above GBP325,000, which would include any shares in a limited company.
However, shares offer significant flexibility. They can be transferred or gifted quickly and easily, allowing for property owners to start planning for inheritance early with a goal of reducing IHT in the future. Property owners can efficiently manage the economics of their investment without entirely giving up control, allowing for increased confidence in a smooth transition of ownership in the future.
