If you’re buying a portfolio from a landlord who holds their properties in a limited company, one of the first big decisions you’ll face is how to buy it. Do you buy the company itself, or do you buy the properties out of the company? This is the share purchase vs asset purchase decision, and the choice affects everything from stamp duty and tax to your mortgages, your tenants and the level of risk you take on.
Here’s a plain-English guide to how each one works, the pros and cons, and which tends to suit buy-to-let (BTL) property companies best.
What is a share purchase?
A share purchase means buying the shares of the company that owns the properties, rather than buying the properties themselves. You’re not acquiring bricks and mortar directly – you’re acquiring the business that owns them.
Because the company stays exactly as it was (only its owner changes), everything inside it carries on:
- You take on the company as a whole
- All of its assets and liabilities come with it automatically
- Existing contracts, mortgages and tenancies stay in place
- The company continues trading without interruption
The advantages
- Smoother continuity. There’s no need to reassign contracts or reissue tenancy agreements – the landlord on paper is still the same company.
- Potential stamp duty savings. Buying shares attracts stamp duty at 0.5% of the price, rather than Stamp Duty Land Tax (SDLT) on the value of each property. On a sizeable portfolio, that difference can be substantial – you can get a feel for the SDLT figures with our stamp duty calculator.
- Often better for the seller. Selling shares can be more tax-efficient for the seller, as they’re typically taxed once (Capital Gains Tax on the shares) rather than twice. That can make a seller more willing to negotiate on price.
The disadvantages
- You inherit everything. That includes any liabilities – unpaid tax, disputes, defects or debts – even ones nobody has told you about.
- Deeper due diligence. You’ll need a thorough look at the company’s accounts, tax position, legal history and property records before you commit. Warranties and indemnities from the seller become very important.
- Possible tidy-up afterwards. The company’s structure, bookkeeping or paperwork may need cleaning up once you take over.
- Built-in tax on gains. The properties stay in the company at their original purchase cost, so any future sale by the company could trigger a larger Corporation Tax bill on the gain. This is often factored into the price you agree.
What is an asset purchase?
An asset purchase means buying specific assets of a business – in this case, the properties – rather than the company that owns them. The seller’s company remains with the seller, and you simply buy the houses from it.
- You choose exactly which assets to acquire
- Liabilities generally stay with the seller unless you agree otherwise
- Each property has to be transferred individually, with its own conveyancing
The advantages
- A clean slate. You avoid the company’s historical liabilities.
- More control. You can pick the properties you want and leave the rest.
- Cleaner for messy histories. If the company has poor records or a complicated past, buying the properties alone sidesteps much of that risk.
The disadvantages
- SDLT on every property. Full Stamp Duty Land Tax applies to each property transferred – and if you’re buying through a company, the higher rates for additional residential properties will usually apply.
- New mortgages. The seller’s mortgages will need to be redeemed and you’ll need to arrange your own finance on each property.
- Tenancies need re-papering. Tenancy agreements and deposit protection will need updating to reflect the new landlord.
- More admin and legal work. Multiple conveyancing transactions mean more time and higher legal fees.
- Often worse for the seller. The seller’s company may pay Corporation Tax on the sale, and the seller may then pay further tax to extract the money – which can make them less flexible on price.
Share purchase vs asset purchase at a glance
| Share purchase | Asset purchase | |
|---|---|---|
| What you buy | Shares in the company | Specific assets (e.g. the properties) |
| Liabilities | Transfer to the buyer | Usually stay with the seller |
| Stamp duty | 0.5% on the share price | Full SDLT on each property’s value |
| Mortgages | Stay in the company (lender consent usually needed) | Must be redeemed and refinanced |
| Tenancies | Stay in place | Must be reassigned or reissued |
| Main workload | Due diligence | Admin and conveyancing |
| Seller’s tax | Often more favourable | Often less favourable |
| Buyer’s risk | Higher (hidden liabilities) | Lower (clean slate) |
Which is better for buy-to-let property companies?
There’s no one-size-fits-all answer, but there are some clear patterns.
A share purchase is often the better route when:
- The company is clean, well run and has good records
- The existing mortgages are on favourable terms and you’d rather not disturb them
- The stamp duty saving is significant
- You’re comfortable carrying out (and paying for) proper due diligence
An asset purchase is often the better route when:
- The company carries risks, debts or has poor records
- You only want some of the properties
- You want a fresh start with no inherited liabilities
A practical example
Imagine a company called ABC Property Ltd that owns five rental houses.
As a share purchase, you buy 100% of the shares in ABC Property Ltd. You now own the company, and the company still owns the five houses. The tenants, mortgages and contracts all stay exactly as they were – though you’ll still need the lenders on board with the change of ownership.
As an asset purchase, you buy the five houses directly from ABC Property Ltd. You (or your own company) become the new owner of the properties, ABC Property Ltd keeps its own liabilities, and you’ll need to arrange new mortgages and re-paper the tenancies.
Don’t forget the mortgages
One point that often catches buyers out: even in a share purchase, existing BTL mortgages don’t just carry on automatically. Most limited company mortgages include change-of-control clauses, so the lender will usually need to approve you as the new owner and director, and may want to reassess the loans. If they won’t, you could be looking at refinancing anyway – so it’s worth speaking to the lenders (or to us) early in the process.
With an asset purchase, you’ll need fresh finance on each property from day one, and the right lender for a portfolio purchase can make a real difference to your costs. Find out more about our specialist and limited company buy-to-let lending.
Talk to us before you decide
The right structure depends on the company, the properties, the finance in place and your own plans – and getting it wrong can be expensive. Because tax and legal advice are essential for a deal like this, you should always speak to an accountant and a solicitor alongside your broker. When it comes to the mortgages, whether that’s securing lender consent on a share purchase or arranging new BTL finance for an asset purchase, get in touch with the team at Pure Mortgage and we’ll talk you through your options.
This article is for general information only and isn’t tax or legal advice. Tax rules can change, so always get professional advice on your own circumstances.
