The Limited Company Trap Costing Landlords Thousands

Are landlords being pushed into expensive limited company structures they do not really need?

In today’s episode, Simon Misiewicz of Optimise Accountants takes aim at one of the biggest pieces of property tax advice being sold to UK landlords, the idea that every residential buy to let property should sit inside its own separate limited company.

This episode breaks down why that advice may sound clever on paper, but can create more costs, more admin, more bookkeeping, more Companies House filings, more corporation tax issues, and more stress for property investors.

Simon explains why the so called legal protection of one company per property may be overstated, why insurance and director negligence must be considered, and why corporate protection is not always the magic shield some landlords are sold.

We also cover the stamp duty land tax argument, including the claim that selling shares in a property company could save a buyer SDLT, and why that may not be useful in real life for many residential property investors.

The episode then moves into associated company rules, corporation tax thresholds, and how multiple companies can reduce access to the lower 19 percent corporation tax band. Simon explains how profits and losses across separate companies may not always be used efficiently, especially where there is no proper group structure.

You will also hear why one larger property company may be simpler, more efficient, and potentially more attractive to lenders, especially where a landlord wants to build a serious buy to let portfolio.

This is not a one size fits all answer. Simon also explains when separate companies or SPVs may make sense, especially for higher risk property development projects, commercial conversions, flat developments, or projects that need to be ring fenced away from long term rental investments.

If you are a UK landlord, property investor, or buy to let investor thinking about company structures, tax efficiency, SDLT, corporation tax, SPVs, or whether you have too many limited companies, this episode could save you money, time, and unnecessary complexity.

UK Property Tax Options:

🌐 UK Property Tax Website: https://www.optimiseaccountants.co.uk/

📅 Book a Call: https://optimiseaccountantsltd.as.me/Optimise-accountants-sales-call

📄 UK Property Tax Guide: https://survey.zohopublic.com/zs/qhCNLB

🎧 Podcasts: https://www.buzzsprout.com/2607825

💼 LinkedIn Articles: https://www.linkedin.com/in/simon-misiewicz-fcca-att-ea-caa-mba-61637033b/recent-activity/articles/

#UKPropertyTax, #BuyToLet, #PropertyInvesting, #LandlordTax, #LimitedCompany, #CorporationTax, #SDLT, #PropertyInvestor, #SPV, #OptimiseAccountants

Transcript

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You should have a limit company for each individual residential property investment. Okay, so I'm going to take this show in a different direction, in as much as the adage of you should buy a property in a separate limited company. And if you have five properties, you should technically have five limited companies. That is probably one of the biggest accounting scams that I've seen in a long time. Let me just demystify this. So landlords have been told by certain accounting practices that you should have a limited company with one property investment. Why is this? Well, they're selling you on this adage of well, it's clearer for you to de-risk every property. So if something goes with wrong with one property, it doesn't affect the other property inside of a limited company because it's shielded from a legal perspective. Okay, fair enough, true. But how many times does that happen? I mean, I've had individual clients that have had hundreds of properties in their own name. When's the risk really going to be that that one property that has an issue going to affect all the other hundred properties? It clearly isn't. And it's been really missold as this benefit to you because really there's never been a risk there. Not really. That's why you have insurances in place. And negligence, by the way, will pierce the veil of corporate protection every single day, anyway, and get to the owner. So really, they are misselling people on this whole notion of protection with inside of a limited company. It does simply not exist. Well, tax perspective. From a stamp duty land tax, if you sell this property to someone else, they can buy this property that contains the residential property and then pay 0.5% stamp duty on the price that you decide to sell at, rather than the residential rates of stamp duty land tax, which is the bandit rates plus the 5% rate, which, for their perspective, is going to be much cheaper. This is another crazy one, right? I mean, how many times do you go into a state agent and say, okay, I only want to buy a property that is currently in a limited company? Not many people are going to do that. And if you're going to be buying a home, you don't want it inside of a limited company because you lose private residency relief and you've got the ATED tax issue as well. So you'd only have to take it out of the limited company, put it into your own name, and guess what? You've then got to pay all the stamp duty land taxes anyway. So again, what is the benefit of saying to someone that it's going to help the buyer reduce stamp duty? It might help another property investor, but that's all it's going to help. And if you're a property investor and you're selling that property, well then you've got to ask, well, why are you selling it in the first place? And if it's a bad property, who is going to be buying it as a separate investment anyway? I appreciate circumstances from one person to another is different. So it is a potential that it could save someone that amount. But is it really worth the hassle of having five properties inside of the five limited companies? There is this risk then of well, why does it all fall apart? This wonderful advice that you might get from these scammy accountants. And I have to be careful because someone might report me for saying that, but actually, if they're reporting me, they should probably report themselves because they're not looking after you as a client. So let's think about this. If you have a property, five properties in five limited companies, who's really benefiting here? Well, the accountant is for a start, aren't they? Because now they've got five limited companies that they're going to charge you for the services for. Five confirmation statements, five ATED returns, five tax returns, companies house, then you've got the registered office services, five times those fees. I mean, those accountants are rubbing their hands together at your expense. What other issues might you have to consider? Well, I think one thing you need to think about is this whole thing about associated companies. Don't you know what that is? It is worth doing some research on this. Because in the UK you have a tax ban where anything less than £50,000, you're paying 19% corporation tax to HMRC on the profits you make. Once you get to £250,000, then you're paying 25% tax, which is obviously quite a considerable change. Now, if you've got five companies, what happens is that £250,000 threshold of paying 25% corporation tax is divided by the associated companies. Now, if you've got let's say six, seven, eight companies, your threshold could be from £250,000 all the way down to £25,000. As for example, that in itself may not sound too bad with that you're paying 25% corporation tax on profits of £25,000. It might be for a lot of people. But if you haven't got it in a group structure, which by the way is an extra expense that you could easily avoid, then you've got five limited companies all in your name. And if you make a loss in one company, you don't get any tax relief, unless, of course, it's in a group structure, as I've just talked about. But if it's not, it's all in your name. Let's imagine you've got three companies that make profits, two that make loss. Those losses of those two companies cannot be offset against the three that make profit. And if you have got this associated company rules that means that those three companies now pay 25% tax, it's most likely in that tax structure that the scammy accountant has sold you on means you're going to be paying five times the amount of accountancy fees and probably double, triple, quadruple the amount of tax that you would ordinarily have paid if those properties were in one single company. Now again, let's go back to risks versus benefits. The risks that they would talk to you about in terms of the hey, let's get them selling on this notion of five companies. The risk that they're trying to talk you into understanding and believing is that you could be subject if one company, sorry, one property goes south, then that could property legal fees and legal suits could offset against your other properties and you could lose those other properties. Arguably, if one company means they get sued, yes, you could close that company down, but if the peers surveil and attack you as director, you might have to sell those of the three companies anyway, or four companies, or five, whatever you have. So, really, there is not that much benefit. And one thing I did pick up on, we're spending a lot of time with an optimized accountants to take clients that have got all these structures in place, and we're having to put together a holding company structure together and then moving properties around to one company or two companies to meet the client requirements. Now, when we're doing that, that is a costly exercise because you've got to do the forms for the disposing company and forms for the requiring company. And putting all that together can cost you a lot of money. Needless to begin with. But we are doing that for a lot of our clients to say, well, actually, it's probably better for you to have one company with all these residential properties together. There is another benefit, finance. If you can prove to a bank that your company has 10, 15, 20 properties and it's very profitable, they may even rather than give you a different application form for buy-to-let mortgages on your next property, they may even think about doing a drawdown facility that looks at across all your property portfolios and then you draw down on the money when you need it, which may be cheaper for you in the long run. So economies of scale come into play when you have one company rather than all these other companies. Makes sense, right? Have you got a wallet or a purse? If you have, can you imagine having five different cards for one company? You know, you're sorry, for each company. You may have a debit card, a credit card for each one. So now you've got ten cards. In your bookkeeping, oh my gosh. Bookkeeping, didn't even think about this. But if you've got five limited companies, you've got five lots of bookkeeping to do now, five different licenses, you've got to keep track of all this administration. What's my username, password for this one? And what's the name convention for this one? Oh, I've got to attach it to this bank. Oh gosh, I've connected the wrong bank account from this business to this bookkeeping system. Oh boy, you could create yourself a sense of overwhelm and chaos quite quickly because you simply have too much home. Let's be fair about it. Keeping things simple, as my namesake, Simple Simon. Sometimes that's not a bad thing. Keeping it simple in one property company could be more beneficial to you than anything else. So, should you buy a residential property in a company and then the second property in a second limited company? Probably not. There may be times when you should do that, but the most likely are going to be chances that you shouldn't. When are the situations when you might consider having different types of properties in different companies? Well, if you've got residential property investments that you are renting out as a landlord, having those in one company might be an idea. If you're doing a property development and you're building a house or you're doing big-scale developments, extensions, taking roofs off, well, actually that's high risk. So if you were doing a high risk project, then most certainly using something called an SPV special purpose vehicle could make sure that you shield that risk of that development inside of a unique company away from your other investments. That could indeed make sense. There may be opportunities as well if you're looking to do big developments. Let's imagine for an example. Might be commercial, convert it to five flats, and what you might want to do is sell four flats out to external people, and then keep one of the flats inside of your buy-select investment companies. Well, if they're all connected, you can easily sell those four properties and then take that one remaining flat and then move that, possibly with a freehold, over to your residential property company. And then you can close down that development company altogether. And now you're back to just one company structure, which is more efficient for you long term. So there are many reasons why you should buy property in just one company, and there are times when you should buy properties in different companies. But again, I can't go through every single scenario, but I hope it's given you enough thought to think about your situation and your company structures. How many companies do you need versus how many companies have you got?