Should You Consider Buying a Property Company?

Property companies often sell off assets as they manage and refocus their portfolio. This is an opportunity for other investors to acquire new properties to bolster their own businesses.

But what if the better choice was to buy the company, lock, stock and barrel?

In this article we’re going to look at the pros and cons of buying a property company outright. Not whether you should operate as a limited company but whether you should buy the whole company rather than just its assets.

This is not the usual approach, but there may be some benefits to it. Instead of buying the property assets of a limited company would you be better off purchasing the entire company?

By doing so you’ll avoid a series of property-specific legal costs & tax obligations, but it may not be the right option for all property investors.

Let’s take a quick look at what’s involved and see where there might be advantages, and possible disadvantages.

Setting the scene

ACME Property Holdings Ltd is looking to sell off its entire stock of rental properties; 10 in all. As a buy-to-let property investor, you’re interested in all of these properties but what is the best way to acquire them.

So, what are your options?

Buy the properties from the company

This would be the most common route – simply to buy the entire portfolio from the company. In this case that will result in 10 property transactions, along with a substantial tax overhead as a result of LBTT or SDLT.

Granted, this burden will be ameriolated by Multiple Dwellings Relief, but both your solicitor and your account are going to be busy. Remember that MDR in England was abolished in 2024.

Buy the company

This might seem like an extreme option but it has some very real merits.

• There will be only one transaction – the purchase of the company
• All of the company’s assets will transfer to the new owner
• There may be a lower tax burden

Let’s expand on this list, because – you guessed – it’s not quite that simple!

Purchasing a company is a far more involved process than purchasing a property. Starting with the Heads of Agreement, there is a deal of negotiation and diligence to be performed before the sale is finalised.

When you purchase a company, you buy the good and the bad – assets and liabilities – unless these have been explicitly excluded from the sale or are covered by warranties. As a buyer therefore you need to know exactly what you’re purchasing.

TIP: Here’s a good guide to the process (one of the few regarding property holding companies) you can read about, too.

When you buy a property holding company and its assets, the status of the properties owned by the company doesn’t change, only the owner of the company. Therefore there is no LBTT or SDLT payable.

You will have to pay Stamp Duty Reserve Tax (SDRT) if you are purchasing shares in a UK company – which is effectively what you’ll be doing. This is currently calculated at 0.5% of the share purchase price.

You may also find yourself liable for the Annual Tax for Enveloped Dwellings (ATED) depending on the value of each property, however this can often work out far cheaper than LBTT/SDLT.

Being clear about these costs versus the tax liability on multiple property transactions is just one of the areas where you need to do your homework carefully, and seek confirmation from professionals before committing.

In theory, there should be no changes for existing tenants, assuming that their rental agreements are with the company. Despite new ownership, that relationship should continue untramelled.

Advice from the property pros

Buying a property company is somewhat outwith our day-to-day dealings, which itself speaks to the relative rarity of this as an option. However, just because it doesn’t happen often, doesn’t mean that it’s not a viable, nor indeed good, option.

Clearly this isn’t something that an individual landlord is likely to ever contemplate but for those who are already operating as a limited company and are looking to expand their holdings, it may be an attractive option.

We’re not lawyers – a point we have made repeatedly over the years – and any undertaking of this nature will require the service of a solicitor well-versed in corporate law.

Experienced corporate lawyers don’t come cheap, we’ve seen suggestions of £1000 + VAT per hour, so it’s important to take advantage of free consultations if offered and to get several quotes.

Corporate law is complicated, and getting it wrong and falling foul of the Companies Act et al can have serious repercussions. Therefore competent legal representation is a must.

In summary…

Buying a company to acquire its assets is not a step to be taken lightly and probably accounts for the relative rarity of this as an option within the buy-to-let sector.

That said, if as a business you’re already operating at scale, it may well represent a cost-effective way to further enhance your portfolio.

As always, we’re more than happy to discuss all options to grow your property investment business, just get in touch to arrange an obligation-free conversation.

Thanks for reading!

Written by Ross MacDonald, Director of Sales & Cofounder of Portolio

Get in touch on 07388 361 564 or email to [email protected]