Property Company formation agents By working with our Limited Company tax specialists, we will ensure your company tax structure meets your requirements. You can be confident that we can help you set up your company correctly in the first instance. We have seen far too many times people contacting Optimise to repair the structure resulting in further unnecessary expense. We help many property investors and property developers set up limited companies with the very best tax structure for them, their families and business partners. What is a limited company in the UK? A property limited company is a legal entity and is formed by shares. It is important to note that the limited company is a separate legal entity from its owners. Any legal suit would be limited by the company’s assets, and not the shareholders. This is provided the directors or shareholders have not given personal guarantees. A property investment company is a separate entity from its owners. Its finances are also separate from the shareholders. Albeit the shareholders own the private limited company, it is essential to note that the money within the limited company belongs to it, not the shareholders. Shareholders may need to pay tax once money is taken out of the limited company. Shares of the company are owned by their shareholders. The property limited company activities are governed by the nominated directors of the limited company. The business is incorporated with the Companies House and we will need to notify HMRC that it intends to make a profit and pay UK tax. The private limited company will have articles of association, which is publicly available for anyone to download from the Companies House website. There are two sets of people that are key to a business formation Directors These are the people that run the day-to-day business activities. They are legally responsible for the conduct of the business. Limited company directors are remunerated by wages Shareholders They own the private limited company. They may or may not be directly involved in the day-to-day operations of the limited company. They receive dividends from the limited company, paid out of the after-tax profits. Benefits of a limited company One of the key benefits of using a limited company is legal protection for the shareholders and directors (to a point). Any legal liabilities are limited to the company, hence the name. Another benefit is tax. Someone who is a sole trader or owns property in their name will be taxed on all the income at the top tax rate of 45%. This UK top tax rate of 45% from HMRC is applied irrespective of whether you want to use the money or not. Until April 2023: Corporation tax is charged at 19% on the profits made in the property company From April 2023: A limited company has a two-tiered approach when it comes to tax. There is a 19% corporation tax rate on the profits up to £50,000. This increases to 25% when the profits reach £250,000. There is a phased rate between the corporation tax rate of 19% to 25% between the profits of £50,000 and £250,000. It is also possible to mitigate the impact of tax when you die. Inheritance tax accounts for 40% payable to HMRC above your inheritance lifetime allowance. The IHT lifetime allowance is £325,000 per person. It does not take a lot for a property investor to exceed this amount in their limited company. Property companies may be set up with freezer and growth shares to mitigate the negative impact of inheritance tax. This allows the capital value to be passed onto one share, and the other shares receive no capital appreciation. There are many ways to extract money from your property limited company in a tax efficient way in the form of wages and dividends. Company formation for non-UK Residents Foreign property investors & property developers that wish to invest in the United Kingdom may want to consider a Property Limited Company. This ensures that the profits generated from property investments or property developments are taxed at the UK corporate level. Foreigners setting up UK property companies benefit from the shielding of tax in their home countries if they live in a high taxed country. You are reminded to speak with one of our International tax advisors to ensure you understand the tax position in your home country before you set up a property limited company. How long does it take to set up a limited company? It is possible to set up a limited company with an online formation agency within 1-2 hours. It takes significantly longer to correct mistakes once the company has been incorporated. Setting up a limited company on your own could give you constant headaches and a tax nightmare. We will talk about these financial disasters a little later. Setting up a limited company that gives you peace of mind and knowing you will be tax-efficient does take time. You can book a call with one of our limited company tax specialists now and be able to speak with them within two working days. After speaking with you, our limited company accountants will form the company within three days. I know, I know. This is a lot slower than setting up a limited company online that only takes 1-2 hours. Again, it is about forming the company in the right way to give you the most significant tax breaks. Quality over time, every time. How much does it cost to set up a limited company? You can form a limited company for about £15 to £50 online right now. As we said above, quality of time and now quality over cost. Do you worry about a price of an item or the cost? There is a distinct difference. The price of an item is what you pay, but the cost of getting it wrong and doing lots of rework could cost you significantly more than if it was done right, first time. Our limited company accountants want to speak with you. Understanding your needs and setting up the appropriate tax structure for your business activities is essential. This takes time, and our company accountants believe in making sure you understand what is being done to give you confidence and comfort. The cost of a tax consultation and company formation is £999.99. Again, I know this is much more than doing it yourself. I ask you to think about the price of getting it done right first time than the tax costs of getting it wrong. Company formation UK – Setting up a private limited company Step 1 – Company name You will need to identify a unique company name from Companies House, which represents the business activities you will perform. Step 2 – Shareholders and types of shares Limited company shareholders need to be identified and shares allocated. This is not as simple as you think. You can use online company formation agencies. The issue is that you may not be tax efficient. Tax can be in the form of income tax on the shares received from the profits made in the company and Inheritance Tax of who is left with the shares when you die. We find that people set up a limited company using an online agency, and they are given ordinary shares. This may sound fine, why wouldn’t it? Let us imagine that you have Jim and Joan, husband and wife shareholders of a limited company. They each have 10 ordinary shares. Jim is a stay at home dad, and Joan is an additional rate taxpayer earning £200,000 per year. They each receive £10,000 in dividends. The nice thing is that each person benefits from £2,000 tax-free dividends. Now the problem begins. Jim receives the extra £8,000 dividends tax-free as he does not have any other taxable earnings. The £10,000 total dividends are below his personal allowance. Joan’s £8,000 dividends are taxed at 39.35% (from 2022/23 tax year). The tax paid on these dividends is £3,148. This goes to show that the wrong tax structure was put in place. If they used alphabet shares, Joan would have received her £2,000 tax-free dividends, but the rest would have been allocated to Jim in the most tax-efficient way. It is crucial to work with a limited company tax specialist who will speak with you to understand your financial position and all the other shareholders. Then, there is Inheritance Tax. It is possible to create freezer and growth shares so that the business shareholders are not burdened with Inheritance tax upon their death but may pass shares to their children during their lifetime to prevent HMRC from getting tax on death. Step 3 – Directors and responsibilities The limited company directors are responsible for the day to day operations. The limited company director will be the go-to person. In this case, we have seen issues whereby one director became incapacitated, and the business bank accounts freeze and legal contracts stall until their return. In hindsight, they realised that it is better to have two directors in a limited company. This means that someone is always available to make decisions, sign contracts and speak with Companies House, HMRC or their accountants without delay. Step 4 – Company formation registered address You may wish to keep your privacy. Many people use a serviced office for their business activities. They would use this address rather than their personal address. Step 5 – Limited company activities and SIC codes It is essential to know what a Standard Industrial Classification (SIC code) is. It tells Companies House and the people that view your business profile what your business does. It is easy to choose a SIC code by referencing Companies House. All you will need to do is match your business activities against the list provided. Setting up a bank account for your limited company Once the company is formed, you will be keen to set up a business bank account that does not charge you the earth for each business transaction. Time is of the essence. You will want to act quickly. Setting up a bank account can be very difficult. This is why it is vital to set up a bank account with Tide. They can set up a bank account, and you can access your account within 24 hours. Many of our clients complain that the so-called big 4 banks take up to two months to set up a simple bank account. This could prevent you from being the success you deserve simply because of administration, which is very frustrating.