By Strategic tax planning is often the cornerstone of boosting your property portfolio’s profitability. For those looking to maximise their returns, understanding how to set up a property investment company in the UK has become a crucial consideration in today’s market.
Fuelled by changes in mortgage interest relief and inheritance tax planning, 69% of landlords plan to buy rental properties via Limited Companies in the next year, according to Paragon Bank research, reflecting a growing trend of property investors incorporating Buy-to-Let businesses.
Have you been considering setting up a limited company for property investments? This guide outlines the key steps and considerations to help you make an informed decision.
While we provide valuable insights, seeking professional advice from a tax specialist or accountant is always recommended to ensure this strategy aligns with your circumstances and investment goals.
Starting a property investment company UK
Across Great Britain, the total number of operational Buy-to-Let companies is now over 390,000, according to Hamptons. It is estimated that 70-75% of new Buy-to-Let purchases are now made through a company structure, with 30-40% of these acquisitions being held by companies formed within the last year.
England and Wales currently have around 680,000 properties held within limited companies, with an annual increase of around 70,000-100,000.
The increase in company-held investment properties is popular for both domestic and international buyers, with GetGround reporting a 35% increase in UK-based incorporations and a 37% rise among non-UK investors.
Younger generations are at the forefront of embracing this trend, with around 60% of companies set up in 2024 having shareholders under 45. What’s more, the number of companies with shareholders aged 16-25 doubled between 2023 and 2024, contrasting with the average landlord age of 60 and the average age of a new Buy-to-Let mortgage borrower being in their mid-40s.
But why are so many landlords and investors starting a property investment company?
Benefits of setting up a limited company for property investment
Owning UK property within a limited company can offer tax advantages such as lower corporation tax rates on profits compared to individual income tax, the ability to retain profits for reinvestment taxed only at corporation tax rates, and greater flexibility in distributing profits through salary and dividends. There are also inheritance tax planning opportunities for those considering passing on properties.
Investors should, however, consider their obligations as a limited company stakeholder, including administrative and accountancy costs, plus CGT and Stamp Duty tax implications, especially if you’re considering transferring existing personal properties into a company structure.
Given the complexities and potential financial implications, it is important to seek professional advice before deciding if a limited company is the right structure for your property investment goals.
How to set up a property investment company in the UK
If you’ve considered the pros and cons of this setup, here are the next steps to setting up a property investment company in the UK. It’s worth noting that there are several companies that you can appoint to guide you through these steps. However, it’s important to do your own research to determine which company is best for you.
If you’re looking to set up a UK limited company for Buy-to-Let property investment, here are some of the main considerations and steps to take.
Before registering your business with Companies House, it is important to identify the director/s of your limited company to establish who will be legally responsible for the company. There must be at least one director and they must be over 16 years old.
The next step is to determine shareholders and who will own the company shares – there must be at least one shareholder. At this point, it could be worth considering family inclusion for inheritance tax planning.
Establishing the share structure and choosing between simple (ordinary) shares offering proportional ownership and voting rights, or complex (alphabet, growth, freezer) shares for varied rights and future planning. If you’re not sure, seek advice on which options best suit your long-term goals.
At this point, establishing Company Rules (Articles of Association) and deciding between standard model articles (suitable for basic setups) or bespoke articles (recommended for complex structures or business partnerships) to define company operations and shareholder rights, especially for future exit strategies, is vital.
Now you’ve made the crucial decisions about directors and shares, it is time for the fun part – naming your property investment company. Select a Company Name that’s unique and memorable, perhaps even hinting at your business focus, but also legally available. You’ll need to check its availability with Companies House and the Intellectual Property Office to ensure your chosen name is all yours.
The final step of this process is registering your company via Companies House or selecting a company to take care of registration and set up for you. Once you’ve successfully registered your property investment company, you’ll receive a certificate of incorporation and a Unique Taxpayer Reference (UTR) number will be issued.
Following incorporation, it’s a good idea to keep track of your records and certificates. It’s also worth highlighting that opening a business bank account is a legal requirement to separate personal and business finances. Once you start trading, you’ll need to register for taxes with HRMC.
Partnering with a professional accountant could help streamline the process and ensure that the financial operations of your business are conducted correctly.
Final thoughts
We hope you’ve enjoyed our guide on how to set up a property investment company in the UK. Forming a limited company for the sole purpose of buying and operating Buy-to-Let investment properties offers several benefits, especially from a tax efficiency perspective; however, it’s not a one-size-fits-all solution. It’s worth considering your long-term goals to see if this is the right option for you.
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