In light of Section 24, you may be moving to use a Limited Company as the vehicle through which you conduct business in the Property Industry. It can be a lot more tax-efficient nowadays, due to methods by which a Limited Company will be able to claim tax relief, handle remuneration and calculate profits against the methods available to an individual.
What is a SIC Code?
A SIC code is a five-digit numbered code that describes the nature of your business and what industry it trades within. You will have to choose the relevant SIC code for your business when you set up your limited company on Companies House. The code will also be used again when it comes to submitting your accounts.
SIC codes provide the bank or lending agency with the business nature of your limited company at a glance. As the database for Companies House is free and accessible online, anyone that is interested can become familiar with the business nature of your company.
The maximum amount of SIC codes that each limited company can have is 4. It is recommended, however, that instead of having a limited company that takes part in multiple different activities within the Property Industry, you have a limited company for each SIC code you will be using. For example, you can have a certain SIC code for your Buy to Let limited company and a different SIC code for the flip side of your business.
You will need a SIC code when filing the SPV’s Annual Return with Companies House. Therefore, it is important to know which SIC code to choose.
Which SIC Codes Are Relevant for Property Investment?
It is particularly important that the SIC code or codes that you register your limited company under are relevant to property. Again, this is necessary for mortgage finance purposes.
You can search for the most appropriate SIC codes to use from the condensed list of SIC codes which are the only ones Companies House accepts. However, these are the 4 SIC codes most relevant for property investment companies:
Section L – Real Estate Activities
- 68100 Buying and Selling of own Real Estate. You should use this SIC code for Flipping property.
- 68209 Letting and Operating of own or leased Real Estate. If you’re going to have Buy to Let properties and hold them, this will be the one for you.
- 68320 Managing of Real Estate on a fee or contract basis. This is especially useful when considering a time when your portfolio might grow large enough that managing it all yourself through an employee would be the right move, as you will also be able to manage other people’s properties.
- 68310 for Real Estate Agencies. This will also be the right code for packaging deals, as you are buying and selling property for a third party.
SIC Codes for Meeting SPV Criteria.
When a company trades exclusively in rental properties, it is known as a Special Purpose Vehicle (SPV) limited company. Lenders classify these companies in different ways, adhering to Standard Industry Classification (SIC) code.
Therefore, lenders like to see the following to make sure your company meets the SPV criteria:
- SIC code for letting property.
- No sign of any revenue through the company of anything other than letting property
If the company has traded in another field in the past, some of the lenders will still lend to the company as long as this is historic, the company has the right SIC code and the accountant can confirm the company will only be letting property going forward.
Should you have more than One SIC Code?
Companies can have between one and a maximum of four SIC codes. You may then ask yourself if your company should have more than one SIC code. This would mean that your company would be undertaking various different activities within the same company.
Therefore, if you are focusing solely on Buy to Let property investment, it might not be necessary for you to have a SIC code different from the pertinent Buy to Let 68209 code.
In truth, you can have different SIC codes for the same company – i.e. still buy and hold as well as trade properties through the same company, although it is not advisable. There are issues with having multiple property activities running through the same company, and it would be wise to seek professional advice to ensure your company structure is correct and efficient from the outset, with special consideration to Capital Gain Tax and business property relief.
To Conclude,
We hope this guide is useful and demonstrates the number of options available when considering the best structure for investment business ownership.
Whether you are an experienced Buy to Let landlord or a first-time investor, it is essential to understand all the pros and cons and seek professional financial advice in consideration of your personal financial and taxation circumstances. Please visit Independent Mortgage Brokers for information on bad credit mortgages and remortgages, Buy to Lets, and online mortgage advice
