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Limited Company Buy to Let

Some landlords set up a limited company so as to buy property to let to tenants. We look at the pros and cons of this property investment approach.

What is a Limited Company Buy to Let mortgage?

This type of mortgage allows you to buy investment properties through a limited company rather than in your own name. The way the mortgage works is very similar to an individual Buy to Let (BTL) mortgage; it’s simply tailored to businesses rather than individuals.

Why do people use a Limited Company for a Buy to Let mortgage?

The Buy to Let tax rules changed in recent years which made property investment more expensive. For some landlords, buying property through a limited company gives them tax relief, especially those who sit in the higher income tax bracket.

There are various pros and cons to setting up a limited company for this purpose, and whether it’s the right decision will depend on your personal circumstance, your income and your property goals. Seek advice from both a Mortgage Broker and an accountant to help you make the choice.

 

Can you set up a limited company with the sole purpose of a Buy to Let mortgage?

Yes, and in fact this is the correct approach. Mortgage lenders much prefer to deal with a business that is purely focused on Buy to Let properties. Trying to buy with a limited company created for another purpose can be very complex.

 

Do limited companies pay stamp duty on a Buy to Let mortgage?

Yes, both limited companies and individual buyers will pay stamp duty on a Buy to Let property, with a 3% surcharge. You can work out the amount of stamp duty due with the government’s stamp duty calculator.

How is affordability calculated for a Limited Company Buy to Let mortgage?

The main considerations for lenders when it comes to Limited Company mortgages are:

  • If the rental income you generate will cover the monthly mortgage payments. They will often require the rent to exceed 125% of the mortgage.
  • If your business can comfortably afford the repayments should there be a gap between tenants
  • If the property is worth the sale price you agreed with the seller
  • Your credit rating and income as Limited Company Director.


They will ask for evidence for each of these areas as part of the mortgage application process.

What are the pros and cons of a limited company Buy to Let?

The main benefit of a Limited Company mortgage is to reduce your tax liability. If you’re a higher rate taxpayer you will be taxed on 40% of your income. A limited company, however, pays corporation tax on profits at 19%.

Other pros are:

  • Having a company keeps your own finances separate – you don’t have to make any personal guarantees to the lender
  • You can claim mortgage interest as a business expense


The cons of a limited company for rental properties include:

  • Company setup costs
  • Extra paperwork and admin – e.g. annual accounts
  • Mortgage fees and rates are often more expensive


Other things to consider are that with a personal Buy to Let mortgage you will be taxed on your income. If you sell the property, it will be subject to Capital Gains Tax.

Can you transfer a personal Buy to Let mortgage to a limited company one?

Yes, but it’s not as simple as a ‘transfer’ – you will need to sell the property to the company. An interesting aspect to this is that the company can purchase the property at below market value. The company does not need to pay a deposit, as you can ‘gift’ the equity which acts as the down payment.

Note that stamp duty will be payable on the property purchased. Again, it is important to seek advice before pursuing this approach to ensure it will suit your circumstances.

 

 

How can a Mortgage Broker help?

As with any kind of mortgage, talking to a Mortgage Broker like First Thought can make it faster and easier to find a suitable mortgage deal.

Most limited company mortgages are only available via a broker, in fact, and we will seek out all the options and recommend the most cost-effective and suitable deals. We can also look at whether it is worth you setting up a limited company to buy property, and whether it will result in the tax credit you are hoping for.

In comparing Mortgage Brokers, note that most of us are authorised and regulated by the Financial Conduct Authority (FCA). However, Buy to Let mortgages are not regulated by the FCA.

For expert Buy to Let advice, give us a call today.

Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

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