Jump to content

How to setup a Limited Company


Recommended Posts

----------- Context --------

I have a BTL property owner jointly under me and my wife's name. We both are high rate tax payers and thus paying considerable amount of Tax on the rental income.

We want to 

1) Take out equity from this property to invest in future purchases. We have almost 40% equity currently

2) Move the property into some sort of Company structure when we remortgage it in end of April 2021(Hoping that the SDLT relief will be extended). As the early payment-charge on existing mortgage deal make it impractical to purchase through company currently.

3) We want to be in a position to extract our initial capital we put into the properties without Tax down the line AND we will be reinvesting all cash flows back into the properties. It is not needed for out living expenses currently.

-------- Questions --------

Can you help help guide me in answering the below questions

1) How much would it cost to get professional advice on forming the company and moving the existing property into it. I mean the fee this company will change for doing it all on my behalf and what services does this fee cover. I understand that i will have to pay 3% SDLT, solicitor charges etc.

2) Suggest a Property-Tax expert who can develop the best strategy for the company-structure for our circumstances

3) I have read that simply forming a company with standard-shares for this purpose might not be the best idea from Tax-planning, Inheritance-Tax point of view. Is that true ??

 

Thanks

 

Link to post

Hi. When you transfer your properties into your company, you may also need to pay Capital Gains Tax (CGT).  When it comes to transferring a property to a limited company, it's best to do it sooner rather than later. The more the value of your properties appreciate, the more CGT you have to pay. 

I would also recommend that you take equity out before you incorporate. If you take equity out now, you can do what you want with it - the money is your personal money. If you take the equity out after incorporation, the money is inside the ltd company. You pay tax again to take it out of the ltd company.

I wrote a guide on how to take money out of a limited company, and the tax implications. 

The cost of accountants will vary wildly. You just need to book appointments and tell them your situation. Just find out who can save you money on tax. 

 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

Link to post

Thanks Vin,

Thanks for the response and link to the your article. I understand that the CGT will have to be paid when selling the property to the Company. 

Can you please clarify what you mean by "I would also recommend that you take equity out before you incorporate" .  Since the company will need the money to purchase the property and I will be loaning the same to the company, I can still take the loan amount (current equity amount) back in full with no Tax implications at all. Is that correct ?

So, how does that transaction happen? How long does it take if i want to do this (+ how much does it cost) i.e.

1) We form a limited company

2) loan the money to the company for purchasing the property [BUT we dont have that cash until we have sold the property ??] .. will i have to borrw money for this transaction OR is there a way to make the transaction work with my correct equity in the property ??

3) Company uses the money (loaned by us) to compete the transaction ... 

 

Therefore, this leaves me with the possibility to withdraw the initial capital i.e. the amount i loaned to the firm without any taxes. Is that right?

 

Thanks

Link to post

I did this a few years back and the solictor basically handled the sale and then transfer to Ltd and sorted out the loans etc as part o fthe transaction. The accountant will log the 'directors loan' against the LTD and you don't need an actual money to change hands as such. Its very straight forward but can involve extra steps such as needing a second solictor to sign off on the LTD BTL mortgage being personal guranteed by the directors etc but your solictor will explain it all and any extra costs - around £1000 all-in but there may be extra's dpending on the detail.

I would say that an accountant isn't essential ifyou can handle the LTD setup and paperwork but gets more essential if you want a more complex setup for inheritance purposes etc. The extraction from LTD can get complex and affect how you setup the LTD in terms of share allocation between you and 'partner' especially if one of you is a HRT payer and the other not. If taking money out is not an issue in the short term then the company shares can be ammended later. As it happens I am in the process of moving from investing everything in the LTD/portfolio to wanting income out so have had to look into all his stuff quite a bit.

Link to post
12 hours ago, sapphire said:

 

3) Company uses the money (loaned by us) to compete the transaction ... 

 

Therefore, this leaves me with the possibility to withdraw the initial capital i.e. the amount i loaned to the firm without any taxes. Is that right?

 

Interesting Post.

I have recently incorporated. I own 2 properties in my personal name and I currently in the process of purchasing another 2 properties under the Ltd company. 

I have gifted the money to my company for both purchases and both me and my wife have given "Personal Guarantees" for the mortgage.

I never considered a loan to be repaid. If I am understanding this correctly, Releasing the money out the business is tax free, even before Corp tax? until the original loan amount is repaid back to me?

Thanks, Craig.

Link to post
1 hour ago, kilbyhousing said:

Interesting Post.

I have recently incorporated. I own 2 properties in my personal name and I currently in the process of purchasing another 2 properties under the Ltd company. 

I have gifted the money to my company for both purchases and both me and my wife have given "Personal Guarantees" for the mortgage.

I never considered a loan to be repaid. If I am understanding this correctly, Releasing the money out the business is tax free, even before Corp tax? until the original loan amount is repaid back to me?

Thanks, Craig.

Yes absolutely. If you repay a loan to anyone, it's always tax free. When your company repays a loan to you, no tax is payable

This is why it's best to mortgage your properties before you incorporate, and then lend the money to the company. There's massive tax benefits

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

Link to post
13 hours ago, sapphire said:

Thanks Vin,

Thanks for the response and link to the your article. I understand that the CGT will have to be paid when selling the property to the Company. 

Can you please clarify what you mean by "I would also recommend that you take equity out before you incorporate" .  Since the company will need the money to purchase the property and I will be loaning the same to the company, I can still take the loan amount (current equity amount) back in full with no Tax implications at all. Is that correct ?

So, how does that transaction happen? How long does it take if i want to do this (+ how much does it cost) i.e.

1) We form a limited company

2) loan the money to the company for purchasing the property [BUT we dont have that cash until we have sold the property ??] .. will i have to borrw money for this transaction OR is there a way to make the transaction work with my correct equity in the property ??

3) Company uses the money (loaned by us) to compete the transaction ... 

 

Therefore, this leaves me with the possibility to withdraw the initial capital i.e. the amount i loaned to the firm without any taxes. Is that right?

 

Thanks

Hello, you are correct. You can repay your loan without any tax implications. 

If you lend £100,000 to your company, then you have a "director's loan account" of £100,000. As your company earn profits, you can take money out of your company. The 1st £100,000 won't attract tax, as you are simply repaying your loan

You'll need a decent accountant to guide you through this process. Don't do it yourself!

I wrote this article that you can look at. It covers the main taxes that a buy to let investor will interact will (personal name and limited company). 

In terms of timeframes and costs, that is something that you need to discuss with a local accountant. My properties are already inside a limited company, so I've been able to avoid this process

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

Link to post
11 hours ago, EvolutionBlogger said:

Hello, you are correct. You can repay your loan without any tax implications. 

If you lend £100,000 to your company, then you have a "director's loan account" of £100,000. As your company earn profits, you can take money out of your company. The 1st £100,000 won't attract tax, as you are simply repaying your loan

You'll need a decent accountant to guide you through this process. Don't do it yourself!

I wrote this article that you can look at. It covers the main taxes that a buy to let investor will interact will (personal name and limited company). 

In terms of timeframes and costs, that is something that you need to discuss with a local accountant. My properties are already inside a limited company, so I've been able to avoid this process

Thanks for the information Vin,

I will get busy finding a good accountant then. Do you know any good accountants who understand property deals/structuring in or near South East London ??

Thanks

Link to post
12 hours ago, haf1963 said:

I did this a few years back and the solictor basically handled the sale and then transfer to Ltd and sorted out the loans etc as part o fthe transaction. The accountant will log the 'directors loan' against the LTD and you don't need an actual money to change hands as such. Its very straight forward but can involve extra steps such as needing a second solictor to sign off on the LTD BTL mortgage being personal guranteed by the directors etc but your solictor will explain it all and any extra costs - around £1000 all-in but there may be extra's dpending on the detail.

I would say that an accountant isn't essential ifyou can handle the LTD setup and paperwork but gets more essential if you want a more complex setup for inheritance purposes etc. The extraction from LTD can get complex and affect how you setup the LTD in terms of share allocation between you and 'partner' especially if one of you is a HRT payer and the other not. If taking money out is not an issue in the short term then the company shares can be ammended later. As it happens I am in the process of moving from investing everything in the LTD/portfolio to wanting income out so have had to look into all his stuff quite a bit.

Thanks for sharing the information,

It is good to know that no extra money is required and also that one Solicitor can manage all this. 

 

One question: Did you get an Accountant get involved to identify what the best Org structure /SPV would be ideal for your scenario ?  and If you dont mind can you share the details of the Solicitor you used ? would you recommend them ?

 

 

Link to post
27 minutes ago, sapphire said:

Thanks for the information Vin,

I will get busy finding a good accountant then. Do you know any good accountants who understand property deals/structuring in or near South East London ??

Thanks

Sadly that area isn't local to me

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

Link to post
On 12/4/2020 at 9:57 PM, sapphire said:

Thanks for sharing the information,

It is good to know that no extra money is required and also that one Solicitor can manage all this. 

 

One question: Did you get an Accountant get involved to identify what the best Org structure /SPV would be ideal for your scenario ?  and If you dont mind can you share the details of the Solicitor you used ? would you recommend them ?

 

 

My accounatht is local in west midlands so won't be much good to you but it really is very straightforward and any accountant will be able to handle. If your starting out then a simple structure is best as you can make changes further down the road once you have a viable business. The only thing you need to decide up front is if you are a one man ltd or will be partnering up (eg spouse).

Drop me a message and i can give you some tips based on your situation - that way you will be upto speed when you tyalk to the accountant..

Link to post
On 12/4/2020 at 10:18 AM, EvolutionBlogger said:

Hello, you are correct. You can repay your loan without any tax implications. 

If you lend £100,000 to your company, then you have a "director's loan account" of £100,000. As your company earn profits, you can take money out of your company. The 1st £100,000 won't attract tax, as you are simply repaying your loan

You'll need a decent accountant to guide you through this process. Don't do it yourself!

I wrote this article that you can look at. It covers the main taxes that a buy to let investor will interact will (personal name and limited company). 

In terms of timeframes and costs, that is something that you need to discuss with a local accountant. My properties are already inside a limited company, so I've been able to avoid this process

The £100,000 profit that the business makes will be liable for corporation tax.

 

The £100,000 can be taken back with zero income tax. 

 

Don't get confused by the two, if you make 100k profit in the LTD co, tax has to be paid on those profits. 

Link to post
17 hours ago, adamholt said:

The £100,000 profit that the business makes will be liable for corporation tax.

 

The £100,000 can be taken back with zero income tax. 

In my messages on this thread it's very clear that I'm talking about taxation upon taking money out of a limited company. 

I never said that you don't pay corporation tax on profits. That is clearly absurd. Nobody on this chat needs clarification about that.. 

 

_______________________________________________________________________________________________________________________________
Vin Gupta
Property Investor and Developer
UK Property Blog: https://evolutionblogger.com/article/uk-property-articles
Travel Blog: https://soulfultravelguy.com/

Link to post
On 12/7/2020 at 10:08 AM, EvolutionBlogger said:

In my messages on this thread it's very clear that I'm talking about taxation upon taking money out of a limited company. 

I never said that you don't pay corporation tax on profits. That is clearly absurd. Nobody on this chat needs clarification about that.. 

 

Maybe I misunderstood you saying:  "As your company earn profits, you can take money out of your company. The 1st £100,000 won't attract tax" 

 

To me that reads as as you make profit, the first £100,000 won't attract tax, hence my comment above. 

 

 

Link to post

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...