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Efficient Property Structure


bigdreamsp

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Hello all.

I want to understand the best way to setup a limited company/companies structure with my wife that will provide flexibility for structuring income in the future and legacy planning as well.

In terms of IHT, I've heard about assigning freezer shares to children or a trust, but as these are very long term plans (don't currently have children) i want to have the flexibility to do this in the future but maybe not right away.

I plan on buying and holding resi and commercial properties (potentially mixed use). However, i may down the line look at serviced accommodation which i believe is classed a trading business and therefore has other tax benefits. 

So, it would be great to get some ideas on how to best structure this taking into consideration income tax, CGT and potentially IHT in the future.

Many thanks  

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Hi

Ideally you should keep things as simple as possible. You should discuss your own and wife's tax position with your tax advisor/accountant before you set up your company. Based on this there might be an optimal split or even class of share (which could have different rights to dividends) that could be issued to each of you to take into account your marginal tax rates. But bear in mind that it might be a number of years before you are profitable and are in a position to pay out dividends. There is also the option to revisit allocation and class of shares in the future, depending on what is in your articles of association (rules about how company is to be run) say. So make sure these allow you some flexibility going forward.

Sorry to keep it really general but there are so many unknowns that it is difficult to give you a clear answer. This is definitely a question to ask an advisor when you set up the company. 

Best of luck

David M Slater ACMA 

Accufy Accounting  - Proactive accounting for property investors 

0208 242 4926    info@accufy.uk

 

 

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On 12/12/2020 at 11:09 AM, bigdreamsp said:

Hello all.

I want to understand the best way to setup a limited company/companies structure with my wife that will provide flexibility for structuring income in the future and legacy planning as well.

In terms of IHT, I've heard about assigning freezer shares to children or a trust, but as these are very long term plans (don't currently have children) i want to have the flexibility to do this in the future but maybe not right away.

I plan on buying and holding resi and commercial properties (potentially mixed use). However, i may down the line look at serviced accommodation which i believe is classed a trading business and therefore has other tax benefits. 

So, it would be great to get some ideas on how to best structure this taking into consideration income tax, CGT and potentially IHT in the future.

Many thanks  

A limited company is a great idea, as it's tax efficient in the long run

Freezer shares might be quite expensive to set up, as you need to write custom articles of association. Also, who would own the growth shares right now? Would you be setting up a trust? Because that isn't cheap either

Income tax is paid by an individual, and not a limited company. So if your company pays yourself a salary, then you'll pay income tax. CGT is also paid by an individual. With IHT, you can always make your kids directors of your company, when they turn 18. 

The SIC code 68209 - Other letting and operating of own or leased real estate is probably suitable for your company

I wrote an article that summarises the main buy to let taxes that you face as a property investor. It could be useful for you

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

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  • 4 weeks later...

First of all many thanks for both replies and apologies I did not receive notifications and so did not see them until now!

I'm definitely convinced I need to use a ltd company going forward. Having thought further about this I'm not too concerned about extracting profits in the short to medium term as I aim to roll up the profits and build the portfolio. Although I do want to make sure I set up the right share structure to provide more flexibility in distributing the income but more importantly passing the assets on for legacy.

I think it's too early to be assigning freezer shares currently because it would mean putting them in a trust and we're only in our 30s. So maybe there's another way.

In terms of the different types of trades, would you recommend having a separate company for serviced accommodation down the line if I pursue this? If so, should I be looking to setup a holding company in advance, I.e. to sit above the spv investing in property and services accommodation property?

Appreciate these are probably questions for a specialist tax advisor but would be interesting to get the views of experienced investors who have already setup smart structures. 

 

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1 minute ago, bigdreamsp said:

First of all many thanks for both replies and apologies I did not receive notifications and so did not see them until now!

I'm definitely convinced I need to use a ltd company going forward. Having thought further about this I'm not too concerned about extracting profits in the short to medium term as I aim to roll up the profits and build the portfolio. Although I do want to make sure I set up the right share structure to provide more flexibility in distributing the income but more importantly passing the assets on for legacy.

I think it's too early to be assigning freezer shares currently because it would mean putting them in a trust and we're only in our 30s. So maybe there's another way.

In terms of the different types of trades, would you recommend having a separate company for serviced accommodation down the line if I pursue this? If so, should I be looking to setup a holding company in advance, I.e. to sit above the spv investing in property and services accommodation property?

Appreciate these are probably questions for a specialist tax advisor but would be interesting to get the views of experienced investors who have already setup smart structures. 

 

A holding company is pretty great if you have 10 or more properties. Below that, the costs probably outweigh the tax benefits

A subsidiary for serviced apartments is a pretty good idea. It can give lenders comfort about what is happening in that company. If you mix strategies inside a company, then underwriters don't like it

 

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

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That's interesting. I wasnt expecting there to be a substantial difference in costs.

On another point would the same apply for management activities? If I choose to manage the properties myself could this be done within the same company or would a separate one need setting up?

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You wouldn't need to set up another company to manage your own properties

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

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