Limited Company Buy to Let
Since April 2017, the government has been phasing in changes where all buy-to-let landlords pay tax on all the rental income generated from their properties. Individual landlords are no longer able to deduct the cost of mortgage interest but do benefit from a tax credit equal to 20% of the interest cost.
However, limited companies are not affected by the changes to mortgage interest tax relief, and many landlords are now setting up limited companies to own the properties they rent out.
Whether you have a small or large portfolio, just starting out or a seasoned investor, the tax benefits of buying property through a limited company can be significant, especially for higher rate tax payers.
Most Ltd Company lenders will only approve companies that are set up to deal in property only. Lenders don’t usually accept business that also trade in or as something else that then also want to purchase property as these will be seen as a commercial deal and require specialist finance.
A company that trades only in rental property are known as Special Purpose Vehicle or SPV limited companies. They will be classified in different ways by the lenders dependent on the on SIC (Standard Industry Classification) code that the company has registered under via Companies House.
These are usually:
68100 – Buying & sell own real estate
68201 – Renting & operating of housing association real estate
68209 – Other letting & operating of own or leased real estate
68320 – Management of real estate on a fee or contract basis
I am an SPV are there many lenders to choose from?
There are more lenders available in the industry now than there used to be and the acceptable loan to value now starts at 85% but do vary in rate. There is now also a range of products available including fixed and variable rates.
I have an existing Ltd Company can I get a mortgage through this?
A limited number of lenders would consider Buy to let lending to a Ltd company that is an existing trading business. Typically, you would need a 25% deposit for this type of mortgage. The number of lenders is restricted but you don’t necessarily have to be trading in property to be accepted for this type of mortgage.
Can I setup a Ltd Company and apply straight away?
It is possible to register a new Ltd company and obtain a mortgage with a select few lenders. In this scenario, it would be best to register the company as an SPV. Loan to value lending starts at 85% and the affordability would be based on the rental yield from your properties.
If the company is in a sole name, the Director would need to be credit scored and where there is more than one Director at least 2 would need to be credit scored to show that the company is creditworthy as the business will be brand new and have no credit history.
Advantages of a limited company buy-to-let mortgage
- Higher tax relief – under current legislation, limited companies pay less tax than individual landlords
- Dividends – you can potentially take up to £5,000 as tax-free dividend income
- No income tax when investing profits to acquire further properties – corporation tax is about half the higher income tax rate
- Personal funds can be drawn back out of the company – for example, mortgage deposits could be drawn back by way of a director’s loan
- No Capital Gains Tax allowance on sales – individuals can benefit from a Capital Gains Tax allowance (currently £11,100) when they sell a property
- Additional costs – running a limited company incurs extra costs, such as accounts preparation, administration and filing. You may need an accountant.
- Higher mortgage rates – many lenders charge companies more than they charge individual borrowers
- Less choice – fewer lenders offer mortgages to companies
You should also be aware that the 3% extra stamp duty levied on people buying second properties from April 2017 will still apply to you if you buy through a company.
Transferring existing properties from individual ownership to a limited company may be complex but it can be done. Talk to us about your current circumstances, ambitions and aspirations. We can give you professional advice to help you make the right decision and talk you through the process. Just call us on 01636 674455. We’re here to help.
Your property may be repossessed if you do not keep up repayments on your mortgage. Professional tax advice also required, we are not qualified to advise on tax.
Other Buy To Let Help
BB Mortgages can help with all your buy to let needs including:
- Remortgage property that has been owned for less than the normal 6 months
- Several flats on one title
- Houses of multiple occupancy for professionals, DSS and students
- Foreign nationals and ex pats
- 1st Time Landlords
- Buying to refurbish and sell on