How to set up a limited company for buy to let

7 steps for a successful company set-up

Before you dive into the Companies House website, there are seven key decisions that you (and your business partner or spouse) need to make about your company structure.

1. Who will be a director of your company?

Is it just you, or are you adding your spouse or business partner too?

• You’ll need to name at least one person who is over the age of 16 as a director when setting up your company.

Being a director is a great feeling and experience. However, as mentioned in chapter one, it does carry certain legal responsibilities. Whilst it’s likely you’ll ask an accountant, such as Provestor, to support you with these, you’ll still need to ensure you have oversight as you are the one legally responsible.

When borrowing money through a limited company (i.e. taking out a mortgage), a lender will typically take a “personal guarantee” from each company director.

This means, should the company not be able to pay its debts, the directors will personally pay them. For example, should your company fall behind on mortgage repayments, the bank will ask the directors to make repayments.

2. Who will be a shareholder in your company?

Will you be the only shareholder or is there merit in including your spouse and children?

Think about your property investment goals. Do you want to create a university fund for example, or perhaps pass on a property business as an inheritance? If so, it’s worth considering including your family in your company.

• When setting up your company, you need to appoint at least one shareholder, who can also be a director.

• Shareholders have voting rights and influence over the running of the company and they’re paid dividends based on the number of shares they hold.

Getting the right shareholder structure is a crucial part of ensuring your business is running as tax-efficiently as possible.

Adding your children or grandchildren as shareholders can help you to be more efficient with inheritance tax planning and planning for your company shares to increase in value.

However, be careful when assigning children as shareholders if you are planning on applying for a buy-to-let mortgage. Lenders look at both directors and shareholders of a company and can look at applications more closely where children are included.

3. What share structure will you use?

There are different types of share structure available depending on your goals.

• When setting up your company, you'll need to choose between ordinary or alphabet shares.

• You'll need to decide how many shares to issue and the value of each share.

Typically, the number of shares issued is 100 and each share is valued at £1. It’s really important to divide your company into at least 100 shares as this gives you the flexibility to sell, transfer or gift small elements in the future.

The share allocation is split amongst the shareholders and this split determines the proportion of profit each will receive if dividends are agreed and paid.

Simple share structure / Ordinary shares

Ordinary shares are the most common type of shares used and these represent proportional ownership of a company.

Each ordinary share gives its owner one vote.

For example, a married couple setting up a property company might each have 50% shares in the company. This means that they each have equal voting rights and an equal share of any profits paid through dividends.

Complex (Smart) share structures

Some advanced investors prefer more complex share structures, often called smart shares. These include alphabet, growth and freezer shares.

Alphabet shares

• Alphabet shares allow a company to assign shares with different classes that have different rights.

• The different share classes are identified by a letter - A,B,C and so on.

• These are used to pay different dividends or to give certain shareholders decision-making powers.

Let's take as an example, Chris and Kate, who are setting up a limited company to build a property portfolio. They have young children and want to build a fund in the property company towards their kids' uni fees. They set themselves up as A shareholders and their kids up as B shareholders - with no voting rights and no dividend payments for now. In the future, they can change the rules around the share class to give the children a share of the dividends.

Growth and freezer shares

Growth and freezer shares allow you to plan for the future and you can choose which share class can benefit from the growth of the company.

Many property investors consider freezer shares when planning for inheritance tax or adding children to the company.

Some of these share structures can be complex. It’s well worth getting professional tax advice and support to ensure your company is set up with the right share structure from day one. An efficient structure, built around your goals, can make a big difference to your company’s profits and long-term tax planning.

5. What are your company rules?

Another decision to make is the rules about how your company is run, also known as articles of association.

What are Articles of Association?

Articles are rules about how the company will be run which are agreed by the shareholders, directors and company secretary.

You can either write your own bespoke articles or use model articles from Companies House.

• Model articles tend to be ok for basic portfolios with two shareholders and an ordinary share structure.

• If you are using alphabet, growth or freezer shares, more complex shareholding structures or business partnerships, you will need need bespoke articles drafted by a specialist to give you more protection.

The importance of bespoke articles of association

Articles are important as they specify how the company is run and what your share class represents in relation to your investment. You can see how this is really important, if you're entering into a business partnership purchasing properties with someone for the first time.

When you’re working with non-connected parties, such as a business partner or someone outside your immediate family that you're investing with, you want to have an exit strategy in place and clear, specific rules to understand what your company can do and what it can’t do. It could be that in 12 months time you’re having an awkward conversation with your fellow shareholders and those clear cut bespoke articles have your back rather than giving room for interpretation.

Also, consider the value of your portfolio in the future - you could be looking at a seven-figure sum for your portfolio value. That’s when you don’t want to discover a mistake was made back at the start of the company.

6. What will your company name be?

Often, this can be the hardest part of starting your company - deciding on a name.

• You'll need to choose a unique name for your company.

Many property investors opt for a ‘say what it does’ approach - for instance, using your name or, if incorporating with a partner, a combination of both names plus “property”. I.e. Smith & Hall Properties Ltd

Here are some property words to get you started:

• Property, properties, houses, housing, property services, property group, residential, property investments, investments, maison, homes, living

Once you have a name idea, the next stage is to check that your chosen name is available. This is an essential step before setting up your company, as Companies House and the Intellectual Property Office will reject names that are already in use or are too similar to existing registered names.

Check your name idea

• Companies House provides a service to search against names in use here.

• The IPO has a similar tool to check against all registered trademarks in the UK.

7. Where will your registered address be?

• You’ll need to decide if you’ll use a registered address service or your home address when registering your company.

Consider your feelings around privacy. Remember that your company's registered office details will be freely available in the public domain: they appear on all official correspondence; they must be present on all letters, invoices and contracts; plus they are available on all company entries held with Companies House and other bodies.

If you decide you do want additional privacy or if you cannot register your company at home, a registered office service is invaluable.

Most accountants offer this service, which usually covers handling company mail, maintaining company registers and notifying Companies House of any changes.

At Provestor, a registered office service is available on our low-cost limited company software and included as standard in our advisory services.

How to register your company with Companies House

Once you’ve gotten the right advice and made key decisions on your directors, shareholders, share structure and articles of association, it's time to incorporate your company with Companies House.

You can use an agent, such as Provestor to set up your buy-to-let company for you, or you can prepare your articles and documents yourself, and register directly with Companies House.

After you’ve set up your company

Once your company is registered with Companies House, you’ll receive a digital certificate of incorporation with your company’s registration number. You’ll also receive a UTR or unique taxpayer reference number within 14 days of your company registration.

You will need both of these numbers when you go to open a bank account and apply for a buy-to-let mortgage.

Record keeping

It’s important to keep a record of the following:

• Minutes of the first board meeting

• Certificate of incorporation

• Share certificates

If you're a Provestor advisory client, we handle all of this for you so it doesn’t get lost among the mountain of paperwork that comes with property ownership. We upload all of your company documents and meeting minutes to the document store in our software, for you to access whenever you need it.

You can also take care of this yourself using our new smart tax software for company landlords.

Set up a business bank account

If you’re using a limited company, you’ll need to open a business bank account in your company’s name. This is because your company is a separate legal entity from you as an individual and it is a legal requirement to keep your personal and business finances separate.

It’s a good idea to open a bank account as soon as you can after setting up your company.

If you’re in the process of setting up your limited company and bank account, you might already have a few property transactions through your personal bank. It’s important to record all eligible expenses against your company’s accounts so you don’t miss out on tax relief!

Provestor is one of a handful of accountancy services authorised and regulated by the Financial Conduct Authority (FCA) to connect directly to banks to download transaction data. We've passed the FCA's stringent requirements to securely connect to banks and store your data.

Check out our blog for more tips on business bank accounts for property investors.

Register for taxes with HMRC

Once you’ve started trading (bought your first property) you’ll need to register your company for taxes with HMRC.

If you're an advisory client, our expert accountants take care of this for you.

Start up with Provestor

Whenever you’re ready, here are 4 ways we can help you start and manage your buy-to-let limited company:

• Tax Advice. Talk through your options and increase your confidence by booking a tax consultation with our Chartered Property Tax Advisors.

• Company Start Up. For a smooth start and to avoid costly mistakes, our expert team can incorporate your limited company, for less than you think.

• Accounting Tax App. Keep on top of your finances in minutes, and prepare and directly submit your accounts and tax returns, with our easy-to-use property accounting app, designed specifically for landlords.

• Advisory Service. As your portfolio expands, the complexity of your financial needs grows too. Provestor’s Advisory Service is the next step for investors seeking a deeper level of support and tax expertise.