16:59 PM, 30th October 2020, About 9 months ago
In turbulent times it’s more important than ever for property investors to protect their property wealth through effective tax planning.
For this, an understanding of smart property company structures is essential to mitigate inheritance tax and provision for the next generation.
Many landlords are now asking themselves; “why has my accountant never mentioned the benefits of having multiple share classes in a Limited Company structure, to enable greater flexibility in terms of allocation of dividends for income tax planning purposes. Also, why haven’t our accountants ever mentioned Freezer shares and Growth shares to us, for inheritance tax planning purposes?”
In this video, Ranjan Bhattacharya quizzes the Mark Alexander, the founder of Property118, on what this terminology all means. Below the video is an example of a Smart property company share structure and an enquiry form for you to learn more about the smart property company structure for you.
Contents of this video: 00:00 | Intro 00:32 | Headwinds on their way for property investors 07:31 | The legacy planning & inheritance tax problem for property investors 09:56 | Smart Company structure for legacy planning 15:15 | Legacy planning case study for Mum & Dad with two kids 21:00 | Benefits of using discretionary trusts 28:18 | Why its beneficial to build a property portfolio in a smart company structure 31:56 | Profit extraction from the smart company 32:55 | Disadvantages of LLP’s compared to a smart company structure 34:45 | What to do with property wealth already built up in ‘unsmart’ companies? 37:44 | How Property118 can help you set up this structure for your family? 40:00 | Wrap-up and ‘the big reveal!’ Consult with Property118 regarding setting up a smart company structure:
Smart property company share structures
Shares can be split into different classes and each class of shares can have its own rules.
Ordinarily, shareholders in a company own just one type of shares, called ‘ordinary A’ shares. These have:
It is possible to create multiple classes of shares so that differing levels of dividends can be declared to shareholders. Likewise, it is possible to create a class of shares which initially have a nominal initial value, because they have no voting rights, no capital and no automatic rights to receive dividends. Below is an example of how company shares can be structured.
If the voting shareholders of the company decide to declare dividends, they can do so disproportionately to the value of shares owned. Using the example above, the voting shareholders could declare dividends on any one or more of the shares classes and then declare different dividends to any one or all shareholders on another occasion. The benefit of this is flexibility to utilise the lower rate tax bands of each family member to take advantage of nil rate band allowances and just 7.5% dividends tax for basic rate tax-payers. One classic use of this structure is to pay dividends to retired parents who are basic rate tax-payers and for them to use the money to pay school fees for their grandchildren.
The good news is that it is never too late, even if you already have an ‘ordinary’ property share company structure. It can be modified.
Likewise, if you have been considering the formation of a property company for your future investment acquisitions, please don’t settle for an ordinary ‘off-the-shelf’ property company. A cheap set up could end up costing you dearly in the longer term. Get your foundations right before you start building!
Just tell us about your future property investment aspirations by completing the enquiry form below, and we will be happy to provide you more information about what is possible and even arrange a ‘one-to-one’ recorded video consultation with one of our landlord tax planning consultants and recommended Barristers-At-Law.Show Book a Tax Planning Consultation