Limited company buy-to-let mortgages
According to recent buy-to-let landlord statistics, a typical UK landlord can expect an annual rental income of £8,256 per property they own. Let our partner B2B Finance help you find the best limited company buy-to-let mortgage for your needs
What is a limited company buy-to-let mortgage?
It’s a buy-to-let mortgage aimed specifically at limited companies, rather than independent landlords. This can be done either with a company that is already set up to buy, sell or manage property or by creating a new SPV (Special Purpose Vehicle) to manage your portfolio.
It’s also possible for independent landlords to transfer their properties into a SPV in order to take advantage of a limited company buy-to-let mortgage. This has become more common practice since the 2017 changes in tax rules for private landlords, and increasingly so as a result of recent rises in interest rates.
Like traditional buy-to-let mortgages, they are not regulated by the FCA (Financial Conduct Authority).
How do ltd company buy-to-let mortgages work?
They work in the same way as a regular buy-to-let mortgage, with the only exception being that you’ll need an SPV solely for the purpose of managing your residential rental portfolio, in order to get one. A handful of specialised lenders may consider multi-purpose company applicants, but this is fairly unusual and only usually offered to well established businesses.
For many people, managing residential lettings purchases through a limited company, rather than in your own name, can reduce the tax burden on your business. However, as this will depend on your personal circumstances, it’s always best to speak to a tax specialist before taking an action.
When using a limited company buy-to-let mortgage you’ll pay corporation tax, rather than income tax on your rental income. As corporation tax is typically set at a lower rate than income tax, this could mean big savings, particularly if you’re in the additional or higher rate income tax bracket.
It’s also a good way to separate your business and personal financial liabilities, providing some added protection against the potential for personal loss.
There can be no more than four directors in any SPV making an application for a limited company buy-to-let mortgages, and each director will also need to provide a personal guarantee on the loan repayments.
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How do I get a limited company buy-to-let mortgage?
The criteria for limited company buy-to-let mortgages similar to normal buy-to-let mortgage criteria, such as:
Minimum 25% deposit requirement - this can be as high as 45% depending on circumstances
Affordability
Creditworthiness
Age limits
Property related criteria - not all lenders support all types of buy-to-let property e.g HMOs (House of multiple occupancy)
Rental income must equal at least 125% of the mortgage repayments
However, there are also a couple of things specific to limited company buy-to-let in addition to the above:
The limited company or SPV will need to have been set up under one of the following codes; 68100 , 68209 , 6820 or 68320
The director(s) financial circumstances will also need to meet certain criteria and they will usually need to offer a personal guarantee on the debt - this is more likely if they are borrowing at above 50% LTV
Some lenders will only consider portfolio landlords - those with more than four mortgaged investment properties
Are there any disadvantages of using a limited company for a buy-to-let mortgage?
Although many landlords will find limited company buy-to-let mortgages more beneficial than standard buy-to-let mortgages, there are some potential disadvantages to be aware of:
Less choice - There are only around 25% of all buy-to-let lenders that provide limited company buy-to-let mortgages, so it can be harder to find a suitable product
Higher interest rates - Given the relatively low competition in this lending niche, the interest rates tend to be higher than traditional buy-to-let mortgage rates
Stamp duty liability - If you’re transferring previously individually owner properties to a limited company you may become liable for stamp duty on those properties
Remortgage fees - Not all lenders will be willing to transfer your mortgage to a limited company buy-to-let from a standard buy-to-let without remortgaging, and a buy-to-let remortgage usually involves further set up costs
Tax is reduced, not avoided - You’ll still pay tax on your income, even though corporation tax is typically less than income tax
There are certainly tax benefits for many landlords who opt to manage their investment portfolio via a limited company, rather than in their own name. Be sure to check with your tax adviser, however, as it will depend on your circumstances ”Kellie Steed, Mortgage Content Writer
Limited company buy to let mortgage FAQs
Does a buy-to-let company have to pay stamp duty?
Yes, stamp duty is charged on all buy-to-let properties over £40,000 at the additional surcharge rate usually applied to second and subsequent properties - even if it’s the first one purchased.
As transferring your property to a business will constitute a legal transfer of ownership, stamp duty will also be payable when you incorporate any individually owned buy-to-let properties into your SPV.
Do I need a specialist mortgage lender for a limited company buy to let?
There are very few high street lenders that offer limited company buy-to-let mortgages, and those that do will rarely work with portfolio landlords. On the other hand, there are specialist mortgage lenders that deal exclusively with portfolio landlords and those that will deal with both portfolio and non-portfolio landlords.
It’s a good idea to speak to a mortgage broker if you’re looking for a limited company buy-to-let mortgage, as they will be able to recommend the most appropriate lender and the best mortgage deal for your needs.
How many mortgages can I have through one limited company?
There is no legal restriction on how many mortgages any one SPV can hold, however, lenders may limit the amount of mortgages any one company can take out. Some lenders may limit your total borrowing figure, rather than the number of properties.
If you exceed the number of properties or value of properties allowed you have the option to use another lender, another SPV, or possibly a commercial mortgage.