Selling your property: simpler with shares
On the scale of stressful life events, selling a property is right up there. It’s been proven – recent research by Benenden Health of 2,000 UK citizens showed that transacting on a property is one the 10 most stressful life events, alongside the death of a family member or friend, having a child, and divorce. All the admin, fees, frustration, disruption. Not to mention the months it’ll probably take. Thinking of selling up yourself? Then prepare for pain.
Or perhaps not. Because there’s another way to sell that can streamline the whole experience – selling all the shares in your property company. Not only does this make your life much easier as a vendor, but it also benefits the buyer, too. So, if you’ve structured your investment with a limited company, here’s why you should consider selling the shares – and not necessarily the property.
How the buyer benefits from a share sale:
When buying shares, the buyer can see your company’s full financial history including its assets, liabilities, income and expenditures.
What does this mean? You get a clear picture of what the major asset (the property inside the company) has been valued at historically, see all the historical rental income and related outgoings for repairs, maintenance and property management services.
With this level of clarity on the asset, you can often reduce the risk of unexpected surprises and have more confidence earlier in the process than with a regular property sale.
This transparency also helps to guard against any sale falling through, as there’s less room for any nasty surprises down the line. Remember that the risk of collapse is always round the corner – 78% of investors have had a purchase fall through, and one in three UK property purchases collapse. This costs investors billions every year – worth avoiding, wouldn’t you say?
No Stamp Duty Land Tax
By purchasing shares, the buyer faces no Stamp Duty Land Tax (SDLT) liability. Instead, they’ll generally pay the much lower rate of Stamp Duty – just 0.5%. This can often mean a saving of thousands of pounds, naturally making your property a more attractive option.
Note: This can also benefit you as a seller. The average buyer would expect to pay a considerable SDLT sum on any purchase. But, by purchasing your shares, they won’t. This means you could charge a little more for the shares and share this benefit with the buyer. You get more, they pay less. It’s a win-win.
How the seller benefits from a share sale:
Flexibility & expanded market
With a limited company, you have options – you can either sell the shares in your property, or sell the property from within the company. This means you open up a whole new market to sell to – property investors specifically – as well as still being able to sell to traditional owner-occupiers.
It’s worth noting that four out of five investors are now using limited companies for buy-to-let, as seen in our research. That means that share sales will be an increasingly common approach to exiting the investment.
Share sales also allows much greater flexibility for buyers purchasing in groups. If buyers were purchasing a property, buying in a group is more complicated if each person is providing a different amount towards the deposit.
For example, if three friends bought a property together but each provided a different amount of cash toward the purchase, there would be more complexity requiring them to be tenants in common, and in order to protect their investment they would likely need to use a trust deed to set up a trust.
With a share sale, each buyer in the group could buy the specific amount of shares they could afford, allowing them to legally own the investment in the relevant proportions.
When you sell the shares in your company, there’s no need to extract the funds and wind up the company (the term for closing down a limited company). This often takes a bit of effort, but it can also mean additional expenses (legal costs, accountants, etc.).
By selling the shares, you can quickly get on with enjoying the proceeds from your sale, and leave the running of the company to your buyers.
So why don’t people do this more often?
Companies can vary in complexity
There are a lot of companies that own property within the UK; from GetGround research of HM Land Registry, there are over 180K companies owning over 800K properties for the SIC codes 68209 & 69100.
As you can imagine, these companies will vary massively in how they are structured and managed. These companies could hold multiple properties, have employees, be VAT registered and lack a clear audit history. Each of these points make valuing and purchasing the shares significantly more difficult.
With GetGround, we form and manage limited companies with a consistent structure. We incorporate Special Purpose Vehicles (SPVs) which are legal entities created for a limited and defined purpose of purchasing and holding a UK buy-to-let property. As such, the companies created through the GetGround platform do not have employees, are not VAT registered and only hold a single property.
This simplicity and consistent structure allows for standardised approaches to valuations and greater access to financing such as limited company buy to let mortgages.
Valuing Shares is Tricky
Typically, valuing shares of an operating company is difficult and valuing shares of SPVs can be even more challenging.
As SPVs are typically created for specific purposes, such as holding specific assets like UK buy-to-let property, they often require specialised knowledge of the relevant industry to accurately assess its value. Additionally, regulatory and accounting considerations can also impact the valuation of an SPV and should be considered.
Often, the value of an SPV is closely tied to the assets it holds and the cash it generates. Below are some common methods used to value an SPV:
- Net Asset Value (NAV) Method: This method calculates the value of the SPV by subtracting its liabilities from the total value of its assets.
- Comparable Transactions or Companies Analysis: This method looks at similar SPVs or transactions in the same industry to get an idea of the potential value of the SPV in question.
- Discounted Cash Flow (DCF) Analysis: This method projects the cash the SPV will generate in the future, which could include rental income and mortgage interest payments, and then discounts those cash flows back to the present value using an appropriate discount rate.
At GetGround, similar to how we standardise the structure of the companies holding buy-to-let property, we standardise the approach to valuing the shares of SPVs. We use the NAV method and calculate this by organising up to date sales accounts for your company.
The preparation of sales accounts, explanation of the NAV method and support with the entire sale process is all included within our GG Sell offering.
Not sure about selling shares?
With mortgage interest rates at their current levels, it’s no wonder some landlords are thinking of calling time on their property companies. And, if you’re one of them, you might be unsure whether a share sale is right for you. At GetGround, we’re here to help you decide.
We’ve helped 20,000+ investors acquire more than £1bn in UK property, all through limited companies. To find out whether a share sale is right for you and your plans, just book a free no-obligation consultation today.