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Limited Company Buy to Let Mortgage
Gio Mandato talks us through limited company Buy to Let mortgages and answers some frequently Googled questions.
Podcast was accurate at point of publication and is subject to change (May 2023)
What is a limited company Buy to Let mortgage? How does it work?A limited company Buy to Let is where the ownership of the property is in the name of a company rather than a personal name. So, if you were to buy a property to rent out, you might own it under your personal name or you might decide to set up Tessa’s Rental Properties Limited, and hold it in that company name instead.
How does this differ from a personal Buy to Let?There are other differences between the two which we will probably cover off as we go along – things like rates and fees.
Should I put my Buy to Let into a limited company?This is purely down to your circumstances, because no two people are the same. What might be right for me may not be right for you.
We can give you the options for what it would look like on a limited company basis and also on a personal basis. We can give you advice on the different options, but we can’t give you tax advice – so it’s important to engage with a tax adviser or an accountant to guide you on what’s best for your personal circumstances. But ultimately we can facilitate your mortgage either way.
How do I set up a limited company or SPV (special purpose vehicle) for a Buy to Let mortgage?You can actually just go on to Companies House yourself and register a company. The important part to note is that you do need to have specific SIC codes, which define what the business does.
Two common ones are used around renting out properties – so again if it’s something you’re not comfortable with, engage with an accountant who can help you out with that. Typically they’ll charge more than the standard fee to Companies House, but at least you know it’s being done right.
What lending criteria do I need to meet for a limited company Buy to Let mortgage?You will tend to find that the criteria for a limited company Buy to Let is very similar to a personal Buy to Let. Often lenders would want you to own a residential property and have an income of sorts to cover any rental voids.
They will typically want you to have a 25% deposit which is fairly standard on Buy to Let mortgages. Some lenders will let you buy with a 20% deposit. Pre-Covid that was as little as 15%, but interest rates were a lot higher. None of those rates are available currently – but they may come back. [podcast recorded in June 2023]
What documents are needed when applying for a limited company Buy to Let mortgage?Documentation again is largely the same. Lenders will ask for proof of income via bank statements, to confirm how you manage your money and get information around your existing credit commitments.
Because it’s going to be in the company name they need to see the company registered on Companies House. They may also request the certificate of incorporation. A limited company owned property will often need to have a personal guarantee attached to it, so you’ll normally need to have independent legal advice around that personal guarantee.
Can you borrow more with a limited company Buy to Let mortgage?This reflects back to what I mentioned earlier about personal circumstances. How much you can borrow on a Buy to Let basis is built from three components. First is the rental income, then second is the type of product you take. The amount you can borrow will differ if it’s a two-year rate or a five-year rate, for example.
The third component is your personal tax situation. If you’re a higher rate taxpayer you actually can borrow less than you could if you were a basic rate taxpayer. If you own the property in a limited company it’s similar to that of a basic taxpayer.
So in theory, a higher rate taxpayer could borrow more through a limited company than in a personal name.
How much does a limited company Buy to Let property cost?The interest rates are very similar. There’s around 0.5% to 1% difference, which isn’t much. What I’ve seen more of recently is that lenders offering limited company mortgages are adding large product fees onto the mortgage.
One lender has a limited company rate very similar to what you’d get on a personal basis, but there’s a 10% product fee. So if you buy a property at £200,000 with a 25% deposit, your mortgage would be £150,000. The product fee on top of that would be £10,500 – which is obviously quite a lot to stomach.
You’ll also find that the lenders for limited company lending will often have survey fees, booking fees and application fees as well. So although the rate’s not massively different, sometimes the fees are quite high.
Do limited companies pay stamp duty on Buy to Let?Yes, you can’t avoid it. There’s two things you can’t avoid – one is death and the other one is taxes. There’s no joy on that one unfortunately.
What are the advantages and disadvantages of a limited company Buy to Let?One of the main advantages is affordability for a higher rate taxpayer. You can borrow more through a limited company.
Putting that aside, if we look at personal circumstances, a change in legislation in 2015 meant landlords could no longer offset mortgage interest against their profits. We’re now in a position where people who own properties in personal names can’t offset mortgage interest against profit.
But that doesn’t apply if you own a property through a limited company. You can still offset 100% from the mortgage interest which reduces your profit and therefore the tax you pay. That’s a major benefit.
There are other benefits as well, including flexibility on tax planning. You can reinvest the income you earn from one property into other properties. You could be clever and invest it in a pension and pay no tax there, potentially. Speak to your accountant and they’ll tell you what’s best for you.
In terms of the disadvantages, how you can actually access the money is quite difficult when you own a limited company. You can generally only take money out through salary, dividends or a director’s loan. You could then end up paying double tax on that income – corporation tax plus tax on salary and dividends. Again, speak to your accountant for advice.
Other disadvantages, as we’ve already discussed, are that fees are higher, rates are higher and there are other things as well. For example, you don’t get a capital gains tax allowance in a limited company, whereas you would as a personal owner.
So there are lots of advantages and lots of disadvantages. Talk to us, talk to your accountant and we’ll put together the best plan for you.
How can a mortgage broker help with a limited company Buy to Let?If you were to walk into an unnamed high street bank – which you may be hard pressed to find nowadays, with them all closing – nine times out of ten they will march you out the door because they won’t offer a limited company Buy to Let mortgage.
Smaller building societies out there do offer these, but they tend to be more localised. If you’re not in that area you’re probably not going to have access to their products. Meanwhile, as a broker, we have access to products all over the country, with many different banks and building societies.
It’s definitely best to speak to us – we can give you the best rate possible based on your circumstances.
Your property may be repossessed if you do not keep up with your mortgage repayments.
Most Buy-to-Let Mortgages are not regulated by the Financial Conduct Authority.
Content was accurate at point of publication and is subject to change (May 2023)