buy to let mortgages

Why purchase Buy to Let property through a Limited Company

The purchasing of rental properties through a Limited Company is becoming more and more popular.  Many people considering this route usually ask the same questions

  • So, what’s involved? 
  • How do Limited Company mortgages differ from standard ones?  
  • What are the benefits and disadvantages to you, the customer?

Seek Advice from your accountant first…

Before embarking on this journey it’s important you understand that Caboodle Finance are not legally permitted to give advice on company structures or tax implications, and with this in mind we always recommend you speak to a qualified accountant at the outset to ensure this is the most appropriate way forward.   If an accountant indicates that owning property within a Limited Company is right for you, we’ll happily assist with the mortgage side of things.

Limited Company Structures For Buy to Let Purposes

Generally speaking, there are 2 types of company that purchase Buy-to-Let (BTL) properties:

Special Purpose Vehicles (SPV’s)

These are companies established and registered at Companies House specifically for the purpose of holding single or multiple properties. Due to the simple company structure mortgage providers typically prefer to lend to this type of company so you may find there are more options available when it comes to selecting a mortgage.  Mortgage providers are generally content to lend to both newly established SPV’s with no accounting history and existing SPV’s with an existing financial track record.

Trading Limited Company

These companies can also purchase or hold property assets but, because they usually have other income streams and business channels, there is a higher element of risk and therefore considerably fewer mortgage providers to choose from when selecting a mortgage. The interest rates and fees may be slightly higher as a result and the track record of the company may also be taken into account

Whichever type of company is in place, any BTL mortgage arranged will be set up in the company name and, despite the company having a separate legal entity and the directors/shareholders having limited liability, most mortgage providers will require the directors/shareholders to provide personal guarantees. Essentially, this means that if the company does not make the required and agreed repayments, the directors/shareholders may be personally liable.

The assessment criteria for either type of Limited Company BTL mortgage can vary massively from lender to lender and may include (but is not limited to) rental calculations, minimum personal incomes, credit checks, minimum deposits and property types. As such, we’d highly recommend that you get in touch and let us guide you as to which lender might be appropriate given your individual circumstances.

How is Landlords Rental Income Treated in a Limited Company?

It is likely that rental income earned via limited companies will be taxed differently to that earned in a personal capacity and an Accountant is the most appropriate person to advise you in this regard.  

Generally speaking however, rental income earned from a BTL property purchased in a personal capacity should be included in an individual’s total annual income which is used to determine their Income Tax Band. Our experience has proven that, in some cases, this increased level of income pushes individuals into a different Income Tax Band making them liable to higher levels of taxation.  

When the BTL property has been purchased via a limited company however the rental income is not received by you as an individual and as such it wouldn’t be included in annual income for the purposes of determining an Income Tax Band. Instead, the rental income is received by the Limited Company and included in the Company income/profit thus rendering it liable for ‘corporation tax’ rather than ‘personal tax’.  It is entirely possible that this method of taxation may be lower than personal taxation however, you should not lose sight of the fact that any income subsequently taken from company profits, whether it is in the form of salary and/or dividends, needs declaring on director/shareholder personal tax returns and the appropriate tax paid.

Once again, Caboodle Finance recommends that advice is sought from a qualified Accountant regarding potential tax benefits or liabilities. 

Advantages and Disadvantages of Buying Rental Properties Via Limited Companies

A key advantage is that it might help with long term estate planning – it’s simpler to transfer a limited company to another owner compared to privately held property. In this scenario the ownership of the property does not change, it continues to be owned by the limited company, which could protect the transaction from personal taxation such as Stamp Duty, Inheritance Tax and Capital Gains Tax (CGT). This can prove useful if you plan to pass your business onto a family member in the future.

One of the greatest disadvantages is that individuals cannot utilise a personal Capital Gains Tax (CGT) allowance when disposing of a property purchased through a limited company as CGT is a personal rather than a company allowance.  Instead, the limited company would be subject to Corporation Tax on any capital appreciation profits achieved when the property is sold.  

A further disadvantage relates to the costs incurred in establishing and maintaining a Limited Company.  Those costs could include, but may not be limited to, items such as accountancy fees and legal fees.  

Finally, mortgage providers may charge slightly higher interest rates and fees for Limited Company Buy to Lets and the choice of lenders may be more limited with fewer product options to choose from.

For more information on owning buy to let property in a personal name, please click here.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE SOME TYPES OF BUY TO LET AND INVESTMENT MORTGAGES.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. CONSOLIDATING DEBTS MAY INCREASE THE TERM AND TOTAL AMOUNT PAYABLE.

Your initial consultation is free and you are under no obligation to proceed with a mortgage we recommend. There will be a fee for mortgage advice. The exact fee will depend on your circumstances and may be reduced depending on the loan amount and any commission we receive from the lender. It is estimated that the fee will be £595, but it may range from £495 to 1% of the amount you borrow. The fee is only payable on completion and can normally be added to the mortgage. This will be discussed and agreed with you before you make an application. Please ask for a personalised illustration.

Secured loan rates from 3.95% APRC, although we have plans available up to 29.9% APRC which allow us to assist customers with the most severe credit problems. The overall cost for comparison is 7.65% APRC. For secured loans a broker fee up to 10% of the loan amount borrowed may be payable on successful completion. A lender fee may also apply. The actual APRC available will depend on your circumstances. All loans are subject to status. Please ask for a personalised illustration.

The guidance and/or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK.

Caboodle Financial Services Ltd, registered in England at SQ2 House, 240b Lichfield Road, Four Oaks, Sutton Coldfield, West Midlands B74 2UD (number 08044670).
Caboodle Financial Services Ltd is an appointed representative of PRIMIS Mortgage Network (PRIMIS), a trading name of Advance Mortgage Funding Ltd which is authorised and regulated by the Financial Conduct Authority. PRIMIS is only responsible for the service and quality of advice provided to you in relation to mortgages, protection insurance and general insurance products. Any other product or service offered by Caboodle Financial Services Ltd may not be the responsibility of PRIMIS and may also not be subject to regulation by the Financial Conduct Authority. The Financial Conduct Authority does not regulate some forms of Buy to Let.

© 2019 Caboodle Financial Services Ltd