Hi, and welcome back to our Pro Masterclass on property investment through limited companies. In this lesson, we're going to dive into one of the most critical aspects of setting up your limited company, tax planning. We'll also explore some of the most popular company structures, focusing on how they can be tailored to your specific situation, especially when it comes to involving family members. So let's get started. As we mentioned in lesson one, one of the benefits of limited companies is the flexibility that they offer. When you buy a property personally, there is very little flexibility and therefore very few tax planning decisions need to be made. Limited companies, on the other hand, offer you a really flexible approach to investing that can be tailored to your circumstances and goals. This flexibility includes how to set up your company, who's a shareholder, and what type and number of shares they own, right through to how you operate the company on a day to day basis and what you do with the profit. We'll come on to shares in a moment, but for now let's look at the most important step in the process of setting up and do some tax planning. Why is tax planning so critical? Simply put, the way you structure your company and manage your finances can have a huge impact on how much tax you pay, how quickly you grow your portfolio, and even the tax due when passing on an inheritance. By planning your tax strategy from the start, you can ensure your company is set up to be as tax efficient as possible. For instance, good tax planning could mean paying less tax on your day to day income or it could mean retaining more of your profits within the company after tax. This retained profit can then be reinvested into more properties, helping you to grow your portfolio more quickly. One key point to remember is it's much easier to get your tax planning right at the beginning. Once your company owns properties and built up value, making changes becomes costly and potentially more complex. That's why it's so important to make informed decisions right from the start. If there's one place to go slow, this is it. Now let's look at the different company structures that you can take advantage of. Understanding these will help you determine your tax strategy. Based on our experience, we've identified three main company structures that work well for most property investors. Each one of these structures offers different benefits depending on your situation and goals. First up, we have the ordinary structure. This is the simplest option where there's a single shareholder who owns one hundred percent of the shares and all the shares are the same. It's a very straightforward setup and is often a good choice if you're not married, you don't have children and you don't plan to. Next, we have the optimised structure. This setup is ideal for married couples or civil partners. It involves two shareholders and uses what we call alphabet shares, often referred to as AB shares. This structure allows you to split the shares between you and your spouse in a way that's most tax efficient. And finally, there's the bespoke structure. This is designed for more complex needs such as involving children, grandchildren, or business partners. This often includes different types of shares with different rights in running the company and sharing the profits. Because this structure can get quite intricate, we always recommend having a tax consultation first. This way, you can work with our advisors to design a setup that meets your specific needs whilst also being tax efficient. Let's take a deeper dive into the most common scenario, investing with your spouse or not. If you're married or in a civil partnership, you're probably wondering whether you should add your spouse as a shareholder. More often than not, the simple answer is yes. By adding your spouse, using alphabet shares and carefully deciding how to split your shares, you can make full use of both of your individual tax allowances. Let me give you an example of how this model might work. Imagine a couple, Emma and Ravi. Emma works full time and is a high rate taxpayer earning close to a hundred thousand pounds per year. She's been careful in the past not to exceed that amount because going over it would mean losing her personal tax free allowance and their free childcare benefits. Ravi, on the other hand, works part time as a basic rate taxpayer. With an optimised structure, they can use alphabet shares to manage their income efficiently. For instance, Ravi could hold B shares, which allows him to receive dividends, whilst Emma holds A shares but chooses not to take any dividends. This setup means that Emma doesn't go over the £100,000 threshold whilst still making use of Ravi's lower tax bracket to minimise the overall tax bill. This is a prime example of how tailored tax planning can have real financial benefits for your family. Alphabet share structures are very commonly used but they do require specific incorporation paperwork and it's essential to get it right from the start. If you form your company yourself directly with Companies House and use their standard documents, as most people do, you cannot use alphabet shares. That's why we strongly recommend working with a professional adviser like the team here at Provestor to ensure everything is set up correctly. Let's talk about inheritance and how a limited company can impact the way that your property investment is passed on to the next generation. One of the benefits of holding property in a limited company is it can simplify the inheritance process. You can either make your children or grandchildren shareholders when you start the limited company or you can transfer shares to them over time. For example, if you want to start passing on your wealth to your children and grandchildren, you could gift shares in your property investment company to them. It's generally easier to give part of a limited company than it is to gift a portion of a personally owned buy to let property. By gifting shares, you can gradually transfer ownership of the company. As well as inheritance, it might be that you have more immediate financial goals in mind. For example, establishing a property portfolio to fund your children's university fees or perhaps to help them get on the property ladder themselves. You may find that a limited company could be a useful tool to support this strategy too. If you're thinking about adding your children or grandchildren as shareholders, it's really important to get tax advice first. There are various tax implications to consider such as potential inheritance tax and capital gains tax. Plus, some lenders might be hesitant to offer mortgages if there are multiple shareholders or if minors are involved, so it's important to speak to your mortgage broker as well. There are also more advanced share structures available such as growth and freezer shares, which can be particularly useful for inheritance planning. Growth shares allow the future growth in the value to be allocated to specific shareholders, often the younger generation, whilst freezer shares can lock in the current value for others. If inheritance planning is something you're considering, it's really worth chatting to one of Provestor's tax advisers to get tailored advice to see how these options might work for you. So to recap, we've covered the importance of tax planning, the three popular company structures and some key considerations when involving family members in your property investment company. Getting your structure right from the start can make a big difference in your tax efficiency and the long term success of your investment strategy. In the next lesson, we'll dive deeper into advanced company structures and tax efficient strategies, so stay tuned for that. Thanks for joining me and I'll see you in the next lesson.