Investing in property through a limited company structure has become increasingly popular for buy-to-let investors in the UK since the launch of section 24.
This comprehensive guide aims to cover all aspect of Limited Company Buy-to-Let Mortgages
- How they work
- If there are any disadvantages
- How they compare to traditional buy-to-let mortgages
- Important FAQs
This guide will equip you with all the knowledge you need to make informed decisions in today’s dynamic property market.
What is a buy-to-let mortgage for limited companies?
Buy-to-let mortgage for limited companies refers to mortgages that are intended for a person or a group that buys residential properties in the name of a limited company, rather than doing it in their personal name.
This approach can offer various tax benefits and financial advantages, particularly for higher-rate taxpayers.
Are there any disadvantages of using a limited company for a buy-to-let mortgage?
While there are many advantages to using a limited company for a buy-to-let mortgage, there are also potential disadvantages to consider:
- Interest Rates: Mortgages for limited companies often come with higher interest rates
- Arrangement Fees: Lenders may charge higher arrangement fees
- Limited Lender Options: Not all lenders offer buy-to-let mortgages for limited companies, which can limit your options
- Capital Gains Tax: Selling a property owned by a limited company can result in higher capital gains tax liabilities compared to properties held in personal names
However, Seeking advice from experts of all aspects like financial advisors, tax advisers and mortgage brokers is very important for you to form an accurate opinion and develop the best investment strategy according to your own financial situation and goals for investment.
How to get a mortgage with a limited company?
Getting a mortgage with a limited company involves several steps and requirements that differ from obtaining a personal mortgage.
Here’s a summary of what the process looks like and the steps involved
1. Setting Up Your Limited Company
Register your limited company with Companies House. Ensure you have a clear business plan and structure in place. Many property investors use Special Purpose Vehicles (SPVs) for this purpose.
2. Prepare Required Documentation
Company Documents:
- Certificate of Incorporation
- Memorandum and Articles of Association
- Latest company accounts (for existing companies)
- Business plan and financial projections (Most lenders ask for this for portfolio landlords)
Director Documents:
- Personal identification (passport, driving licence)
- Proof of address (utility bills, bank statements)
- Personal tax returns (Tax calculations and tax year overviews)
- Credit reports
Property Details:
- Property address
- Property details (Terraced, semi, number of bedrooms etc)
- Energy Performance Certificate (EPC)
3. Get in touch with the mortgage broker
A mortgage broker with experience in limited company buy-to-let mortgages can help you find suitable lenders, gather required documentation, and navigate the application process.
A specialist mortgage broker can help you:
- Research Lenders: Not all lenders offer mortgages to limited companies. Look for lenders that specialise in buy-to-let mortgages for limited companies.
- Compare Products: Consider interest rates, fees, and terms. Specialist lenders often offer products tailored to the needs of property investors using limited companies.
- Prepare and submit application: Completing a mortgage application correctly is not for the faint hearted. A competent mortgage broker can complete, submit and package a mortgage application giving you the best chance for getting a mortgage offer.
It is highly recommended that you work with accountants, solicitors, and mortgage brokers who have experience in limited company buy-to-let mortgages so that you can successfully obtain a mortgage through your limited company.
What is the SIC code requirement for a limited company buy-to-let mortgage?
The Standard Industrial Classification (SIC) code is a key requirement for limited company buy-to-let mortgages, as it indicates the nature of the business.
For a limited company focused on property investment and rental, the SIC code must accurately reflect this activity
Lenders use the SIC code to confirm that the company’s primary business activity is property investment. This helps them assess the risk and tailor the mortgage product accordingly.
Common SIC Codes for Property Investment
- 68100: Buying and selling of own real estate
- 68209: Other letting and operating of own or leased real estate
- 68320: Management of real estate on a fee or contract basis
It’s advisable to consult with your accountant to ensure the correct SIC code is selected for your limited company. Incorrect codes can lead to complications or rejection of the mortgage application.
How does a limited company buy-to-let mortgage differ from a personal buy-to-let mortgage?
Limited company buy-to-let mortgages and personal buy-to-let mortgages serve the same fundamental purpose: financing the purchase of property intended for rental income.
However, they differ in several key aspects:
| Aspect | Ltd Company Buy-to-Let | Personal Buy-to-Let |
| Ownership and Structure | The property is purchased and owned by a limited company, typically a Special Purpose Vehicle (SPV) set up specifically for property investment. The mortgage is in the name of the company, not the individual. | The property is purchased and owned by an individual or jointly with other individuals. The mortgage is in the name(s) of the individual(s). |
| Taxation | Rental income is subject to corporation tax, which can be lower than higher rates of personal income tax .Full mortgage interest can be deducted as a business expense before corporation tax is applied. Profits withdrawn from the company as dividends are subject to dividend tax. | Rental income is subject to personal income tax, which can be higher for higher-rate taxpayers. Limited mortgage interest relief is available, with a basic rate (20%) tax credit. |
| Mortgage Rates and Fees | Generally higher interest rates compared | Typically lower interest rates and arrangement fees |
| Lender Options and Criteria | Fewer lenders offer mortgages to limited companies, narrowing the options. Stricter eligibility criteria, including detailed business plans and financial scrutiny of the company. | More lenders in the market, offering a wider range of products. Standard eligibility criteria focused on an individual’s creditworthiness and personal income. |
| Legal and Administrative Requirements | Additional legal and administrative responsibilities, such as maintaining company accounts, filing annual returns, and complying with corporate governance. Personal guarantees from directors may be required, linking personal liability to the mortgage. | Fewer administrative burdens as there is no need to manage a company structure. No requirement for personal guarantees since the mortgage is in the individual’s name. |
| Flexibility and Control | More flexibility in how profits are managed and reinvested within the company. Control over dividends and salary distributions to directors/shareholders. | Direct control over rental income and property management. Simpler to access profits directly without the need for dividend distribution. |
Do you need a specialist mortgage lender for a limited company buy to let?
It is recommended that you opt for a specialist mortgage broker as well as lender if you’re looking to secure a limited company buy to let mortgage.
These lenders cater to the unique requirements of limited company structures and have expertise in dealing with the complexities involved.
- Understanding of SPVs: Specialist lenders are familiar with Special Purpose Vehicles (SPVs) and their role in property investment.
- Tailored Products: They offer mortgage products specifically designed for limited companies
- Corporation Tax Knowledge: Specialist lenders are well-versed in the implications of corporation tax and other tax considerations for limited company
- Detailed Financial Assessment: Specialist lenders conduct thorough assessments of the company’s financial health, including company accounts, business plans, and projections of rental income.
- Director Guarantees: Specialist lenders understand how to structure these guarantees to mitigate risk.
- Limited Mainstream Lenders: Many mainstream lenders do not offer products for limited company buy-to-let mortgages due to the additional complexity and risk involved. Specialist lenders fill this gap in the market.
- Expert Advice: Specialist lenders often provide expert advice and support throughout the mortgage application process
Speaking with a mortgage broker who has done limited company buy-to-let mortgages before can be a way for you to find the lender and product that will best suit your needs.
FAQs
The exact number of mortgages you can have through one limited company is influenced by lender policies, the company’s financial health, and property management capabilities. To navigate this process effectively, consider working with a mortgage broker who specialises in limited company buy-to-let mortgages.
Yes, interest rates for limited company buy-to-let mortgages are generally higher compared to personal buy-to-let mortgages.
Yes, you can transfer existing buy-to-let properties into a limited company, but this process involves several considerations
– Setting up the Ltd company
– Valuation of properties
– Transfer process
– Stamp Duty Land Tax (SDLT)
– Capital Gains Tax (CGT)
– Tax Implications
Consult with a tax adviser to understand the full tax implications of transferring properties to a limited company.
When winding up a company that owns buy-to-let properties:
- When winding up a company that owns buy-to-let properties:
- Sale: The properties are typically sold, and the proceeds are used to pay off any company debts and distribute the remaining funds to shareholders.
- Transfer: Alternatively, the properties may be transferred to the company’s shareholders or another entity, potentially triggering tax implications.
Mortgage Settlement: Any outstanding mortgages must be settled before finalising the property disposal.
Yes, it is possible to switch from a personal buy-to-let mortgage to a limited company buy-to-let mortgage. However, This process requires careful planning and professional advice to manage the financial and legal implications effectively.
The structure or setup of the limited company can significantly affect mortgage eligibility. Lenders prefer or require that the limited company be an SPV, which is specifically set up for property investment.
If the company is a holding company or involved in other business activities, lenders might have stricter criteria or may not offer mortgages at all.
Lenders also review the company’s financial statements.
The company’s Standard Industrial Classification (SIC) code should also reflect its primary activity as property investment.
Furthermore, the company’s tax status, including any outstanding tax liabilities, will be considered by lenders.
Not all lenders like if a company holds commercial property and other assets. However, it is possible to get a mortgage through a company which owns commercial property along with residential buy to let property.
Yes, it is possible to get a buy-to-let (BTL) mortgage using a trading company but it can be a bit more complicated. For example, You’ll need to provide detailed financial statements and a business plan, including how the property investment fits with the company’s trading activities.
Also, Personal guarantees from directors will be required. Working with a mortgage broker experienced in handling trading companies for BTL mortgages can help overcome such challenges.
It’s generally challenging to secure a buy-to-let mortgage using a dormant company because Lenders prefer companies that are active and operational. Also, a dormant company has no recent financial activity, which makes it difficult for lenders to assess its ability to service the mortgage.
You might need to reactivate the company, update its records, and provide recent financial statements before lenders will consider it for a mortgage.
Consulting with a mortgage broker can provide tailored advice and help you find suitable options.
