Benefits of a Limited Companies Outside of Tax Efficiencies


Although buy-to-let limited companies are beneficial from a tax efficiency perspective, they also provide a multitude of other benefits to the investor. In this section, we go over how limited companies help provide greater protection for the investor, inheritance planning flexibility, options to buy property as a group, and sale process flexibility/

Separating out Personal Liability and Company Liability:

Companies were invented to make it easier for businesses to thrive, and one of the benefits is separating out an investor’s or owner’s personal liability versus the company’s liability. 

What does this mean? In the simplest terms, it separates out your personal assets from a company’s assets, and also your personal liabilities versus a company’s liabilities. It simply creates a clear separation between you and the company.

But why is this important? If there are issues with the company, say hypothetically something were to go wrong and your company is getting sued, the risks are isolated only to the company and it is very difficult to go after the investor behind that company. 

However, if the property is held under your personal name, the person suing you might also be able to tie in your personal wealth, or your personal homes unrelated to your buy-to-let property in order to seek more money from their lawsuit.

In short, putting a buy-to-let property under a company structure, as opposed to putting it in your personal name, gives you an extra layer of safety. 

But what about personal guarantees, which are also a common way of dealing with this issue? Although personal guarantees are prevalent, it is weaker than protections specifically spelled out under a company structure. In short, personal guarantees are harder to prove and enforce in court, and can involve more headache and time spent from you as opposed to holding your property under a company structure. 

Inheritance planning

A company structure also allows for a flexible transfer of ownership which is much easier versus ownership under your personal name. Typically, these transfers of ownership can also be tax-efficient.

This is especially important when you consider inheritance and estate planning. 

One benefit under a company structure is that you can slowly give your children gradual ownership of your buy-to-let company. Say you can grant them 5% of your company each year until they turn 21 (you can start gifting shares when your children turn 18). This process can be difficult and tax-inefficient for you when you hold properties under your personal name. 

The second benefit is that you can retain control of your company, and therefore your buy-to-let property, until you deem it is fit for your children to start managing control. You can do this simply by remaining a majority shareholder of your company (more than 50% ownership) or clearly writing rights in your company legal documents.

The third benefit is the tax efficiency in doing this transfer. Assuming the share transfer, or gift, is made 7 years prior to your death, there is a potential for your children to not be hit with additional capital gains or inheritance tax. But please check with your advisor as each person’s circumstances may be different. 

Buying with multiple people

The other benefit of a company structure is that it allows for multiple people to invest together.

Imagine a scenario where you have 3-4 different people who want to pool money together to buy a single property in London. Doing this under your personal name can be incredibly inefficient and difficult.

A company essentially allows for investors with little capital to band together to buy one expensive item, in this case, a buy-to-let property. For instance, young professionals and individuals with little capital can band together to start getting on the property ladder and own a property, which was once only easy for investors with a large pool of capital.

And to manage multiple shareholders at once, make sure you have a good shareholder agreement to protect you and everyone else’s legal rights. Check out our blog link below to learn more how to best approach this problem. 

Flexibility on sale

Under a company structure, you can choose to either sell your buy-to-let property by way of selling (1) partial or all your shares in the company which owns the property, or (2) selling your property outright. 

Under your personal name, you can typically only sell your entire company. Selling your property partially can get very difficult, and very expensive, quickly. 

Let’s slowly go over the options on how you can extract value out of your buy-to-let property under a company structure.

First, when you sell shares in your company, you can either choose to sell them partially or 100%. It is up to you. This process is straightforward. As mentioned, not so under personal ownership.

Second, when you sell shares in your company, in most investor’s circumstances, you may be able to buy and sell shares without stamp duty land taxes. And if your buyer does not have to pay stamp duty when purchasing your shares, this means that you can potentially sell your property at a higher price. 

This is because when your buyer is thinking about purchasing a property, he or she will also need to think about your property cost plus stamp duty. If they don’t have to worry about stamp duty, then your buyer might be more flexible in having the property price be higher. For this particular point, make sure to consult with your advisor if this circumstance applies to you.

Third, the buying and selling of shares typically does not involve lawyers in the property conveyancing process. This can take 6-8 weeks to complete. As a result, you save considerable time when thinking about your next property transaction.

Fourth, you still retain the option to sell your property without touching your shares. The point about companies is that it gives you many different options to extract value that works best for you at that particular moment.

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