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Use of SIC Code 68209 is applicable if you plan to own and let UK property within a UK Limited Company structure.
However, “do NOT buy investment property in a UK property investment company until you have read this page fully.”
Off-the-shelf limited companies with model Articles of Association and a single class of shares are not optimised for your benefit. They are ‘cheap‘ for a reason!
By way of example; with an off-the-shelf company all shareholders own the same types of shares and each share carries the same rights. This may not suit your circumstances at all, never mind tax reasons. For example, you may want to modify the share structures for business continuity or legacy planning purposes, to attract investment, or to ensure that voting rights are not proportional with the percentage of all company shares.
Whilst this page looks primarily at the tax position, you must not confuse that with the main benefits of Family Investment Company structures, which are different for every business.
Unlike trading businesses, property companies do not qualify for Business Relief. This means that the value of your company shares will automatically be exposed to inheritance tax on your passing – unless you take action now.
If you are not already familiar with Family Investment Company “FIC” structures we highly recommend that you do some research using AI Chat Bots such as Chat GPT or online searches using a platform such as Google.
HMRC has accepted that Family Investment Company structures are legitimate forms of business continuity and legacy planning for a few years now. One typical structure is to create multiple classes of shares, some with voting and dividend rights and a cap on value (Freezer shares) and others with negligible if any voting rights that accrue all future growth in the value of the company (Growth shares). Gifting the Growth shares whilst they have a negligible value removes them from the estate of the existing owners for inheritance tax purposes without incurring significant tax consequences. This requires legal work such as changing the company Articles of Association and re-filing a Confirmation Statement with Companies House. Often, a Shareholders Agreement is also necessary to achieve the required outcomes optimally. Likewise, the arrangement can also encompass gifting the Growth shares to a Discretionary Trust to preserve the benefits of the planning across several future generations of the family.
A further benefit of an FIC Family Investment Company structure is that each family member can own a separate class of shares. This simplifies tax planning for dividend allocation significantly. This is because the Directors can then allocate dividends to each class of shares separately to utilise nil rate bands or the lower tax rates applicable to individual shareholders. A standard company share structure is limited to a single class of shares, meaning that any dividends are divided pro-rata to the percentage of the shareholding.
The simple answer to this question is YES. However, the benefits of doing this will only apply to future growth in the value of the business and, likewise, for dividend tax planning. For this reason, it makes sense to implement the restructuring of an existing company as soon as possible.
Why hasn’t my Accountant told me about this?
Don’t feel too bad, you are not alone. Less than 1% of the 350,000 landlords who invest in rental property through a UK Limited Company know about Family Investment Company structures. This isn’t because they have bad Accountants. It’s because this form of planning is a reserved legal activity. There are also very few lawyers who specialise in this area because it is expensive to reach their target audience and far from the mainstream. People rarely walk into a law firm to ask about Family Investment Companies in the same way as they do about conveyancing, divorce, litigation, probate, etc.
Implementation
We only ever recommend implementation of this type of planning to be carried out by qualified Barristers, Law Society and STEP-regulated Solicitors. However, whilst many professionals carry such qualifications, most of them are generalists. Property118 Consultants will only ever refer you to professional advisers who are both qualified and highly experienced in advising landlords.
Are mortgage lenders happy with Family Investment Company structures?
In a word, YES, mortgage lenders are very happy with FIC structures. We have yet to come across a lender that isn’t, providing the Growth shares comprise only a tiny fraction of the overall share capital. We’ve even come across a few forward-thinking mortgage lenders that go as far as recommending Family Investment Companies to their borrowers.
How much does this type of planning cost?
Assuming you use excellent professional advisers with significant relevant experience you can expect to pay around £15,000 for this type of planning, which would typically include the following legal work: –
The cost of not doing this type of planning or getting it wrong could prove to be catastrophic to future generations of your family. For example, during the reign of Queen Elizabeth II, UK property values increased 128-fold. To see what that could mean to your family, put the gross value of your rental properties into a calculator, multiply by 128, and then deduct any current mortgage values. Then multiply by 40%. The figure shown on your calculator at this point will be the amount of inheritance tax your family could pay if history repeats itself over the next 70 years but only one generation passes away in that amount of time. If two or three generations were to die over this period the inheritance tax paid would be far more.
If you would like to experience the peace of mind that comes with completing this type of planning, the first step is to complete and submit the form below.
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