Going down the limited company route with self employed friend

Going down the limited company route with self employed friend

10:46 AM, 1st September 2015, About 9 years ago 8

Text Size

Am just starting out with a couple of non-mortgaged properties but plan to grow and as I am a HRT payer I have decided to create a limited company with me and the non-working wife. I have done lots of research and spoke to a few accountant friends and am reasonably confident that I have a good plan which consists of :
– create limited company with 2 shareholders (me-director, wife-company secretary)
– transfer existing 2 properties (I am aware of CGT, SDLT, etc and factored this in)
– also put in some cash to keep the company going in the early days
– after a short period get a mortgage against the 2 properties to fund a 3rd
– repeat as and when finances allowco

I am not looking to take much cash out and will re-invest in the main
the only thing that may seem odd is that I have no time to do the actual management of the properties in terms of all the finding-tenants/getting-ready/maintaining/etc stuff so my plan is to use self-employed friend to do all that and I will just pay him the 15% charge that i would normally pay a letting agency. The tenant will still have the contract with my company so the rent is revenue in and the 15% will be a expense out.
I know I can ’employ’ this person but would rather not as he has other things he does as self employed person. I would also use him for all my repairs/refurb etc and pay him per job.

I hope to be up and running by end Sept so just doing all my due diligence in advance of sitting down with an accountant and getting things moving.

comments welcome


Share This Article


Neil Patterson

10:51 AM, 1st September 2015, About 9 years ago

Hi Haf,

I don't see the outsourcing of management as odd except for the fact you could consider doing it with LettingSupermarket for 4%. see >> http://www.property118.com/letting-supermarket-full-management/68829/

Howard Reuben Cert CII (MP) CeRER

12:46 PM, 1st September 2015, About 9 years ago

Hello Haf

Depending on how quickly and by how much you wish to grow your property portfolio, you might want to ensure that a) the Limited Company you set up has the correct SIC codes (lenders require specific codes to be in situ), and b) that you then secure approval for mortgage financing so that when you spot your next property opportunity that you and your wife are credit-worthy approved and in a 'good for the money' position to make an Offer and buy.

You have also said;

"– after a short period get a mortgage against the 2 properties to fund a 3rd
– repeat as and when finances allow"

So, a lender relationship is quite important for you (the market for Ltd Companies is not as great as for individuals) especially if you need multiple property financing.

Hope that helps.


Simon Lever - Chartered Accountant helping clients get the best returns from their properties

13:23 PM, 1st September 2015, About 9 years ago

Hi Haf

One or two points to consider when looking at your structure:

Does your wife do anything for the company? - even if it is answering the telephone and taking messages. If so why not pay her a salary to use up her personal allowances.

Have you discussed different classes of shares with your accountant. If these are possible then you could pay differing levels of dividends to pay less tax overall as you are a higher rate taxpayer.

You will need to revalue your properties every year for the accounts. This can be informally done by you but if you are looking to remortgage then the values assigned to the properties by the lenders will be a good indication.

For your "mate" who is doing the work for you - please make sure he is self employed and submits a tax return. He should give you invoices for his work. Also do not take all of his time with your work as you may be deemed to be employing him if you are his only source of income.

For the money you are putting into your company treat it as a loan - maybe preferably from your wife - and have the company pay interest on it. It will be an expense in the company but a way of extracting money from the company without paying NI. A formal loan agreement would be best.

Hope these help and give you things to consider.


13:44 PM, 1st September 2015, About 9 years ago

Do you appreciate that the company will be regarded as a property investment company, which means it is not regarded by HMRC as a trading company for tax purposes? This means that the shares in the company will not be eligible for entrepreneurs' relief or holdover relief for CGT purposes. Also, the shares in the company are not eligible for business property relief for IHT purposes, so the full value of each person's share in the company will be included in their estate on death.

Have you considered including development activity within the company, either now or at a future date? Provided this is sufficiently large - say, 50% of turnover - this would allow the company to be re-defined as a trading one for tax purposes and enable you to benefit from entrepreneurs' relief etc.

haf ali

14:54 PM, 1st September 2015, About 9 years ago

Thanks to everyone (especially simon) for the great feedback.
I am seeing my accountant tomorrow to nail things down and get him to create the company with his 'registered' address etc. A few more comments;

1. It looks like I may be better off making my wife a shareholder and director to justify paying her a decent wage under NI limit (c£8k). Plus it means we can both extract dividends to the 0% tax limit. Will get accountant to confirm

2. I get the points about further finance and will look into that asone of my early actions - though I think it will be end of the year before I need finance for next property.

3. The guy who will manage and refurb my properties is registered as self employed and is not exclusive to me so hopefully all ok on that front

3. I like the idea of the startup funding being a loan from my wife that the company could pay interest on. As I understand the company would have to pay hmrc 20% tax against that interest so it would be no different to corporation tax but it means the money could come out without incurring further taxes.

4. I also looked at the option of me remortaging my primary residence to free up cash for future purchases and then loaning or even giving the money to the company - given i would get a better rate of interest from the banks. But again I couldn't figure out the advantage and how this would be impacred by 2015 budget etc
This whole area of finance is a bit messy so will have to ask the accountant

5. I do understand that my company will not be eligible for various 'reliefs' such as entrepreneurs relief etc

I will post back once i have had the meeting with the accountant

Linda Price

17:22 PM, 5th September 2015, About 9 years ago

Reply to the comment left by "Howard Reuben" at "01/09/2015 - 12:46":

We've been well supported by both Lloyds and Barclays. We bought our first property in the Ltd company with our own money, then gave the bank a charge over that so that we would have the funds available if we saw anything we wanted quickly. We then use the available funding to buy then add that property to the bank security to release the next lot as we need it.
This has worked very well, as we have been able to add value before the bank have it valued. Makes going to auction much more fun as we know we have the money in place. As long as I aim for a 75% LTV (much higher than we would want to go anyway) we can have what we want.

Howard Reuben Cert CII (MP) CeRER

10:32 AM, 6th September 2015, About 9 years ago

Reply to the comment left by "Linda Price" at "05/09/2015 - 17:22":

Nice one Linda, that's a perfect example of how relationships can work for speed of funding.

For added value, the market is of course always highly competitive and a relationship with the right Broker who has access to Lloyds, Barclays and all of the other commercial finance providers too (i.e. a Broker who is usually also a Full Member of the NACFB) can not only help with the speed of funding but best value from the competitive products out there as well.

We have many (huge portfolio) Clients who have a mix of lenders due to each property having it's own leverage requirements and as we all know there is no individual lender who offers the "best" rate / fees/ pricing within each LTV banding.

haf ali

21:10 PM, 6th September 2015, About 9 years ago

Well, after speaking to the accountant I am the proud Director of a limited company.
Next action is to move my 2 properties into it;
The first has gone up in value around 50k as i bought at auction and added value via refurb and extension. I plan to use my CGT, past losses and refurb/extension costs to ensure i pay no CGT
The second, I have only just bought so has no increase in value and I will add value once its in the limited company.
I have enough funds to refurb the second property and once thats complete I will look to refinance one or both for the next project
My spouse is a director+shareholder and I don't intend to withdraw any profits anytime soon.
All good so far and I am glad I have done it in the early stages of my property development business

Leave Comments

In order to post comments you will need to Sign In or Sign Up for a FREE Membership


Don't have an account? Sign Up

Landlord Tax Planning Book Now