Buy to Let Mortgages with a Limited Company

Woman researching buy to let mortgages on laptop

There is a growing trend in the UK of companies buying property on a Buy to Let basis.

But if you’re a director of a limited company it can be incredibly difficult to decide whether this is a good option.

You may be concerned about ongoing property management costs, regulations and tax implications.

And that is after you have found a mortgage that is suitable for your situation!

This guide breaks down everything you need to know concisely to give you the answers you need around a Buy to Let limited company mortgage.

Let’s dive in.

Can You Get a Buy to Let Mortgage Via a Limited Company?

Yes, you can get a Buy to Let mortgage as a limited company.

Buy to Let (BTL) Limited Company (LTD) mortgages are unregulated products in the UK which means there are a few things to consider;

  • You won’t have the usual financial protections from the FCA that traditional mortgages have.
  • The products you’re offered may vary significantly in there terms and criteria.
  • In some cases, you may need to offer a director’s guarantee for the mortgage.

There are a number of reasons why you might be considering a Buy to Let Limited Company mortgage. The two most common reasons are;

  • Secure funding/finance for your company above and beyond the standard £25,000 that company loans offer.
  • Purchase property to rent out (Buy to Let).

For the purpose of this guide, we will focus specifically on Buy to Let mortgages through Limited Companies.

The Advantages of Purchasing a BTL Property Via a LTD Company

There are many advantages of a Buy to Let Limited Company mortgage when compared side by side with traditional mortgages.

These advantages usually fall into two categories, the first being they can be more cost effective due to tax benefits and the second is Limited Company Buy to Let mortgages tend to be more flexible than residential mortgages.

Below we have outlined the key areas where Limited Company BTL mortgages might be more advantageous.

Tax Benefits

When you take a Buy to Let mortgage through a Limited Company, the interest on the payments is tax deductible.

This means that you will be able to offset the interest payments against your company’s tax bill.

For more information about taxation and interest payments you should seek advice from your accountant.

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Expense Claims

Another tax benefit is that you can make claims against your tax liability for some expenses incurred whilst managing and maintaining the property you purchase. 

Again, as this is an area of taxation your accountant would be best placed to advise on what you can and can’t claim on for expenses in relation to the property.

Asset Protection

In some cases, it could be beneficial to hold a property in a company name rather than your own personal name. 

This won’t always be the case as some Limited Company BTL mortgages require what’s known as a director’s guarantee.

A director’s guarantee normally means signing a declaration that should the company cease trading you accept personal liability for the debt (potentially putting your own house up as collateral).

In this regard, asset protection is a very technical aspect of Limited Company BTL mortgages, and you should once again consult with your accountant to understand if you can protect assets through a mortgage or if it potentially exposes you to more risk.

Future Tax Planning

When you transfer a property under a limited company it can be easier.

This is once again a fairly complex area as technically the company will still remain the actual owner of the property, but the person who holds control of the company will in turn own the property.

For example, if you’re planning to leave your company to your child, you can do this and the property transfers alongside the company ownership changing hands.

This can prevent taxes that would normally be applicable to a property sale or inheritance being charged such as:

  • Capital Gains Tax (CGT)
  • Inheritance Tax (IHT)
  • Stamp Duty.

Once again this isn’t a hard fast rule, there are always exceptions to rules in cases with limited companies and property ownership and you should discuss this with your accountant.

No Capital Gains Tax on Sale

When a private Buy to Let owner sells a property in the UK, they will have a capital gains tax allowance (currently £12,300). Any profit over the £12,300 in a tax year that an individual makes by disposing of investments will be taxed.

Capital gains tax isn’t just charged on property, it takes into account all investment disposal in that year such as sales of shares, businesses or valuable possessions.

When a company disposes of a property, it isn’t subject to capital gains tax and is instead subject to corporation tax. Depending on your circumstances and how much profit your company is generating this might work out better.

Simplified Portfolio Expansion

As mentioned above, disposal of assets by a company is not subject to capital gains tax. This means that you can potentially grow your portfolio in a more cost-effective way compared to expanding your portfolio outside of the limited company.

Profit from sales of assets owned by companies is subject to corporation tax. This means that when this tax is taken into account, it might not be better in your personal situation, and you should seek tax advice specific to your situation.

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Easy Change of Ownership

When you sell the company, the property owned by the company will be transferred automatically to the new company owners.

This doesn’t necessarily protect you from tax, but the actual process of transferring a property can be much easier when it is owned by a limited company.

Adverse Credit Problems

It is fair to say that in some cases a Limited Company BTL lender will credit check directors of the company to get an idea of their financial standing. This is especially the case in companies with limited trading history or where a director’s guarantee is required.

But it isn’t always something that is required with a  Limited Company BTL mortgage and a lender is primarily concerned with the financial health of the company as opposed to individual directors. As a result, if you’re looking to borrow money that isn’t available to you personally, using a company with a good trading history can be a viable solution.

The Disadvantages of Purchasing a BTL Property Via a LTD Company.

You will notice that many of the advantages mentioned above will be specific to your situation and company’s circumstances. Some of the disadvantages outlined below may only be applicable to some companies.

Higher Deposit Requirements

Limited Company BTL mortgages are far riskier for lenders than traditional mortgages. This is because mortgage fraud is more common on commercial mortgage products compared to personal mortgages.

For example, a company can cease trading at any point and is only liable for any debt equal to the total shareholding of the company. If a company ceases trading after taking a loan or mortgage it can be a complicated recovery process for a lender.

One of the ways they mitigate this is normally lenders will ask for a higher deposit. This keeps the loan to value (LTV) as low as possible for a lender and helps protect them from the above mentioned risk.

More Costs Involved Compared to a Traditional Mortgage

Buy to Let mortgages are unregulated, and this means that  BTL mortgage lenders can create products outside of the regulatory framework. Many Limited Company BTL mortgages have high mortgage arrangement fees, higher deposits (see above) and higher interest rates (see below).

Higher Mortgage Rates

 Limited Company BTL mortgages are typically built around fixed rates of interest. 

While it is possible to find a lender that offers a variable rate on a Limited Company BTL mortgage product, these products will be the exception rather than the rule.

What’s more, these products often have a higher rate of interest compared to traditional mortgage products. It is however worth remembering that interest payments can be offset against your tax bill when processed through a limited company.

Lower Lender Access

This aspect is quite straightforward. There is more risk with Limited Company BTL mortgages and as a result there are fewer lenders that offer these products. 

Because of this, you will find the number of mortgage options available to you can be limited compared to a traditional mortgage.

Potentially Higher Legal Costs During Conveyancing

Limited Company BTL mortgages have a different legal framework to traditional mortgages. You might need to employ a specialist conveyancer who is versed in LTD BTL mortgage arrangements, or your conveyancer may charge more for processing this type of mortgage.

This isn’t always the case, and some conveyancers will undertake conveyancing at a comparable cost to a traditional mortgage. Many factors come into play here and things like how complex the mortgage is and how many searches are required can impact how much conveyancing costs.

Less Privacy Regarding Financials

Depending on how much money your company generates, you may not have too much financial information available publicly. For example, smaller companies can often file simplified or abridged accounts which show very basic accounting information.

When you take a Limited Company BTL mortgage, this will be reflected in your accounts, and in most cases, you will need to file a more detailed summary of your accounts.

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Setting Up Your Limited Company

Setting up a limited company is a relatively straightforward process. You can complete the application using Companies House. 

If you’re setting up a limited company with the sole purpose of using it to obtain a LTD Buy to Let mortgage you will likely run into a number of issues. A significant issue that we see frequently from clients relates to company SIC codes. Most lenders will insist on your Limited Company being setup as a Special Purpose Vehicle (SPV). This means that it is solely setup for a specific purpose. For Limited Company Buy to Let Lenders, they will typically insist on it being setup for renting residential properties. The lender can identify the purpose of your company through your registered SIC Codes, as shown on Companies House. 

For example, one lender in the current market will accept the following SIC Codes:

  • 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

The reason why Limited Company BTL lenders insist on the company being an SPV is because they do not want other business activities, which they may be unfamiliar with, to influence the liquidity and solvency of the company. As the lender understands the risks of renting in the residential sector of the housing market, it is happy to lend to companies looking to only take part in that sector. 

Before setting up a limited company, it is always best to discuss your options with an accountant. You will have additional responsibilities that have costly outcomes if you fail to meet them.

Running a Limited Company

Once the company is set up you will need to maintain your companies records with Companies House and ensure your tax filings are made on time.

Any changes that are made within the company structure such as share distributions, addresses and director details will also need to be kept up to date.

Failing to manage your company properly can incur hefty fines from both HMRC and Companies House.

Landlord Criteria and BTL Owners

The government has taken a harsher stance on landlords in recent years with a wave of changes being made to open up the property market to first time buyers.

Part of this initiative has resulted in a regulatory change implemented by the Prudential Regulatory Authority (PRA) in 2017 which means that some landlords now face increased scrutiny.

If you own 4 or more properties as a landlord, your entire portfolio will be stress tested by lenders (something that was only done on the mortgaged property in the past). As a result, the mortgage process can be delayed, or you might find that the amount you’re able to borrow is less than expected.

Limited Company Landlord Criteria

This increased scrutiny on the private Buy to Let sector has resulted in many companies now operating to manage and hold Buy to Let portfolios. A limited company doesn’t have the same regulation or checks making it a potentially easier way to secure Buy to Let financing.

Given the governments stance and the sharp increase in limited companies buying up property, it is unclear how long this lack of oversight will last but currently the market is very buoyant for limited companies using Buy to Let mortgages.

Boon Brokers is a whole of market mortgage, insurance and equity release broker. We have expertise in both personal and limited company Buy to Let mortgages call us today to discuss your next Buy to Let mortgage.

Gerard BoonB.A. (Hons), CeMAP, CeRER

Gerard is a co-founder and partner of Boon Brokers. Having studied many areas of financial services at the University of Leeds, and following completion of his CeMAP and CeRER qualifications, Gerard has acquired a vast knowledge of the mortgage, insurance and equity release industry.