Are You Looking For A Limited Company Mortgage?
With recent dramatic changes relating to mortgage interest tax relief for Buy to Let Landlords, financing properties in a Limited Company has become the route of choice for new and existing landlords.
How Can We Assist?
The Following Topics Are Covered
Author- Aakash Nagrani CeMAP CeRER
Why Purchase A Buy-to-Let Property as a Limited Company?
Is There A Difference Between Limited Company, LTD Company and SPV?
How Do I Set Up a Limited Company/Get An SPV For A Buy-to-Let Mortgage?
What Are The Criteria for a Limited Company Mortgage?
How Many Mortgages Can I Have Through a Limited Company?
Moving a Buy-to-Let Property Into a Limited Company
Advantages And Disadvantages Of A Limited Company Buy to Let
How To Get The Best Buy to Let Mortgage Rate?
Top Ten Tips for Landlords in the UK
Why Purchase A Buy to Let Property Through A Limited Company
There are a number of tax advantages obtained by purchasing through a Limited Company or SPV (Special Purpose Vehicle) if you are a landlord trying to grow your portfolio.
The two main reasons are mainly tax-related- here's why.
1. With Purchases in your Personal Name, Income Tax is Payable on your Rental Income
You could be pushed into a higher tax bracket as rental income is added to your overall personal income. To find out more about updated income tax brackets, you can follow the HMRC page
2. You Pay Corporation Tax on the Rental Profits on Properties Held in a Limited Company, not Income Tax
There is no higher tiering in Corporation Tax, unlike Income tax. Currently, the corporation tax rate for (2022-2023) is set at 19%, however, this can change and to keep updated you can follow the UK Government Link to understand changes in Corporation Tax allowances
A great reason why landlords prefer taking a mortgage out in a Limited Company is you can offset many expenses which you can't in your personal name including a few mntioned below:
General maintenance and repairs to the property,
Water rates, council tax, gas and electricity
Insurance – landlords’ policies for buildings, contents and public liability
Costs of services, including the wages of gardeners and cleaners
Letting agent fees and management fees
Legal fees for lets of a year or less, or for renewing a lease for less than 50 years
Vehicle running costs (only the proportion used for your rental business)
Is There A Difference Between a Limited Company LTD Company and SPV?
A Limited Company is a private company whose owners are legally responsible for its debts only to the extent of the amount of capital they invested.
An LTD company is the same as a limited company and the only difference is purely out of personal preference
An SPV (Special Purpose Vehicle) is a Limited Company with the sole intention to manage properties. You can set one up precisely for the purpose of taking out a limited/LTD company buy-to-let mortgage
How Do I Set Up A Limited Company/ Get an SPV for a Buy to Let Mortgage?
Taking a Buy To Let Mortgage through a Limited Company needs to have the sole purpose of buying/selling or managing property.
There are predominantly two SIC codes used to classify limited companies where its main business activity is property investment and these are 68209 and 68100. The description for SIC code 68100 is Buying and Selling of own real estate.
To set up a Limited Company you can easily do this by signing up to Rapid Formations to find the perfect package to form your Limited Company.
What Is The Criteria For a Buy To Let Limited Company Mortgage?
The criteria for a personal and normal Buy-to-Let mortgage is very similar.
As mentioned, a limited company will need to be set up for the sole purpose of buying/selling or managing property
Generally, the assessment criteria varies from Lender to Lender but most lenders will look at the overall financial history of the directors and shareholders in the company. In many cases, the company director will generally be required to guarantee the debt. borrowed.
Most lenders are now comfortable with newly formed Limited Companies'/SPV's .
How Many Mortgages Can I Have Through A Limited Company?
Specifically, per lender, the exposure is approximately 4-5 mortgages or a hard limit on the total amount you can borrow with them or across all other lenders.
Moving A Buy to Let Into A Limited Company?
With the changes to the tax rules, transferring a Buy-To-Let Property into a company name is becoming an increasingly attractive proposition for many landlords, but be sure to speak to a mortgage broker before you proceed to make sure this is the right option for you.
The changes include loss of mortgage interest tax relief and wear and tear for landlords with the property in their own name.
The good news is that these changes don’t apply to buy-to-lets owned by a limited company, because the properties are seen as a business, so expenses can be written off for tax purposes.
The downside is that if you already own buy-to-lets and want to transfer them, it will usually mean a sale and repurchase.
This could mean incurring a range of additional costs, including:
Capital gains tax
Stamp duty (including the surcharge)
Valuation and mortgage fees
There are exceptions to this in some scenarios, where if you can evidence being a portfolio landlord is your full-time role, and you own enough property (among some other things) you may be eligible for relief.
Advantages And Disadvantages Of Limited Company Buy to Let
For those interested in purchasing property through their limited company with a buy-to-let mortgage, there are certain advantages and disadvantages to consider.
Tax: Can be seen as more tax efficient than personal income, especially for higher rate or additional earners.
Limited liability: If the company dissolves it is not forced to sell other personal assets (unless guarantees or other security is given).
Multiple shareholders on title deeds: Can make it easier to manage proportions of ownership and share of profits etc.
Increased potential borrowing: Other lenders for new personal mortgages may not take these into account as commitments and therefore may allow increased personal borrowing.
Limited number of lenders to choose from: More restrictive criteria and choice of products, which may mean higher rates/costs and less value on investment.
Potential fees: Consider any increased legal costs and paperwork (likely to include property details and tax returns).
Complications: A buy-to-let mortgage for a limited company may be slightly more complicated to set up
Mortgages for Limited companies on residential and Buy-to-Let investment properties can be a tricky thing to source, as not all lenders (in fact very few when you look at the whole market) are happy with such a setup.
*We recommend that you speak to a tax specialist such as an accountant to assess the advantages and drawbacks of using a limited company for purchasing a property.
How To Get The Best Buy to Let Limited Company Mortgage Rate?
To get the best rates on a limited company buy-to-let mortgage, talk to one of the advisors we work with. They have whole-of-market access, which means they can find the best buy-to-let mortgages for limited companies available. There may even be broker-exclusive deals that aren’t available to the general public that could potentially save you even more.
All lenders are different and offer different rates, depending on their lending criteria and your personal circumstances. An existing Ltd buy-to-let company with a good track record in managing rental properties profitably will be looked on more favourably than a new company.
This article is intended to provide a general understanding of the topic. The contents should not be treated as advice.
Please note Accelerated Finance only considers applications for commercial or investment properties.
Your property may be repossessed if you do not keep up repayments on the finance secured against it.