Advice for property professionals on setting up a limited company

The Complete Guide to Setting Up a Limited Company for Property Professionals

17 May 2024 | Written by Innovus

Business Services

Are you a landlord, property investor, or real estate consultant currently operating as a sole trader? Incorporating and forming a limited company can bring significant benefits for property businesses of all sizes. From reducing your exposure to legal liabilities to achieving tax efficiencies and improved credibility, making the switch is worth careful consideration.

This comprehensive guide will walk you through the key factors to think about before incorporating, the step-by-step process for company formation, accounting and tax responsibilities to be aware of, as well as the pros and cons to weigh up. We’ll also explain how Innovus can support you through each stage as a leading provider of specialist company formation and property accountancy services.

What is a Limited Company?

A limited company is a type of business structure where the company is a legally separate entity from the owner(s). This brings the advantage of limited liability, meaning the owners’ personal assets remain protected if the company faces legal issues or goes into debt.

Limited companies are owned by shareholders and run by appointed directors who manage operations and make decisions on the company’s behalf. This separates ownership from management.

The key differences from being a sole trader are:

  • You pay corporation tax on profits rather than personal income tax
  • Official compliance requirements like filing annual accounts
  • The business’ finances are distinct from your personal income

Considerations Before Incorporating

There is no one-size-fits-all answer for when is the best time to form a limited company for your property business. It requires weighing up various factors:

Business stage and profits

If you are an established landlord, investor or agent earning profits above around £30,000 per year, incorporating could make sense to benefit from more tax-efficient ways of extracting income. For start-ups, it may be better to begin as a lower-cost sole trader.

Appetite for administration

As a limited company, you will need to handle more administrative tasks and compliance responsibilities compared to being a sole trader. These include filing annual accounts, recording company directors/people of significant control, and stricter requirements overall.

Growth plans

If you have aspirations to grow quickly, build a brand, or potentially sell your property business in future, a limited company structure can seem more credible and professional. It also allows you to incentivise employees/partners by issuing shares.

Step 1) Choose a Company Name
One of the first decisions is picking a name for your new limited company. There are rules around this including:

  • No offensive or controversial terms
  • Words like “British” require special permission
  • Names must be unique and not a duplicate of another registered company

A simple way to check availability is using the free Companies House online name checker tool. Once the name is approved, it will be reserved for a period.

Step 2) Determine Company Officers/Structure
A limited company must have at least one director appointed, who is responsible for running the company and making key decisions. Directors’ names and residential addresses are publicly available on the Companies House register.

You’ll also need to assign share ownership and shareholders. This can be a straightforward structure with you as the sole director and shareholder. Or you may wish to allocate different share percentages amongst co-owners.

Step 3) Register with Companies House
Now you can officially incorporate your new property company by registering with Companies House. This can be done online directly, or use a company formation agent service which handles the process start-to-finish.

You’ll need to submit details like the proposed company name, address, details of directors/shareholders, share capital information and the company’s planned activities.

Once approved, your company will be issued with a unique registration number and certification of incorporation.

Step 4) Set Up Business Fundamentals
With the company legally formed, there are some key things to put in place:

  • A business bank account in the company’s name
  • Arrange accounting software and get set up for payroll, VAT, etc
  • Register for relevant taxes like corporation tax and PAYE
  • Invest in required business insurance policies

An accounting service can take care of this whole setup process to hit the ground running.

Accounting and Taxes for a Limited Company

One of the biggest changes from being a sole trader is how you will be taxed. Instead of paying income tax, limited companies pay corporation tax of 19% on their profits. This rate is currently advantageous compared to higher income tax bands.

You are still able to draw income from the company by paying yourself a director’s salary and/or dividends from profits after corporation tax. There are different rates for each so tax planning is advisable.

Companies must also file annual accounts and a company tax return to HMRC each year. This formal documentation details financials, director/shareholder information, persons with significant control, and activities during the accounting period.

These accounting and tax responsibilities are a key reason that many hire professional accountants experienced in the property sector. Services like Innovus provide full-service accounting, bookkeeping, tax advice and filing to stay compliant.

Benefits of a Limited Company for Property Professionals

Asset Protection

Perhaps the biggest motivation to incorporate is to limit your personal liability. A limited company is a legally separate entity from you as an individual. So if the company faces issues like legal disputes, outstanding debts or bankruptcy – your personal assets like a home, car, savings remain protected.

Tax Efficiencies

While not automatically “tax avoidance”, the ability to draw a combination of lower-taxed income like dividends and reinvest profits can create tax advantages compared to higher income tax brackets. This allows you to build wealth more efficiently.

Enhanced Credibility

Having “Ltd” after your company name, displaying a registered office, and the ability to produce professional incorporation documents all contributes to an image of being an established, credible business. This can help when pitching for deals or projects.

Raising Capital

If you have ambitious growth plans, such as building a substantial property portfolio or buying rental premises, a limited company makes it easier to raise capital through avenues like bank loans, investors, or selling shares.

Incentivise Partners/Employees

You can attract talented people to your property business by incentivising with shares or partnership stakes. This aligns interests for driving the company’s long-term growth.

Potential Downsides of Incorporation

While there are clear upsides to incorporating as a property professional, limited companies do involve higher administrative burden and costs compared to operating as a sole trader:

Initial Formation Costs

Registering with Companies House directly starts from around £12, but add instructional fees for using a formation agent. There are also fees if you trademark the name or have complex requirements.

Stricter Record Keeping

A raft of formal record-keeping and filing requirements for accounts, audits, directors’ personal details and other compliance areas that sole traders can avoid.

Annual Fees

In addition to corporation tax and accounting costs, limited companies incur annual fees for services like renewal of your company registration, charges for Companies House filings and more. Budgeting for £200-500+ per year.

More Tax Planning Needed

With corporation tax, income tax, National Insurance, and dividends to account for – company taxes are more complex to optimise and likely require professional advisors.

As you can see, there are significant responsibilities and costs that come with the privilege of limited liability. It’s an important consideration for every property professional to weigh up both sides based on their business situation.

How Innovus Can Support Your Limited Company Formation

If after evaluating the pros and cons you decide setting up a property limited company is the right move, Innovus is your ideal partner and accountancy specialist for the entire formation and ongoing support process.

Our tailored company formation services for property professionals include:

  • Full setup and registration with Companies House
  • Preparation and filing of all incorporation documents
  • Setting up business banking, accountancy infrastructure, VAT, PAYE, etc
  • Registration for Corporation Tax and handling Persons of Significant Control
  • Advice on optimal tax structure for your business
  • Ongoing accounting, bookkeeping, payroll and tax filing

Get in touch today to discuss your property business goals and let our experts advise on the optimal way to incorporate your company for legal and tax efficiency. Our knowledgeable accountants have experience working with landlords, investors, developers and professionals across the UK property industry.

Get started with a free initial consultation to find out more.

Get in touch today

Our team of experts is here to guide you.



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