Limited Company Buy To Let

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Why purchase a buy to let through a limited company?

There may be tax advantages to buying through a limited company.

If you own buy to let property in your personal name, you have to declare the income to HMRC and pay tax on any profits. For some people, this income on top of salary or self-employed earnings could push them into a higher tax bracket.

Limited companies are taxed differently to individuals. For example, companies pay corporation tax on profits. People associated with the company, such as directors and shareholders, only pay income tax on money they draw from the company as either salary or dividends. If no money is drawn, no personal tax is paid. Corporation tax would still be mandatory, however some expenses can be offset against this.

Speak to a qualified accountant and tax advisor to find out if a limited company would benefit you.

Can a limited company get a buy to let mortgage?

It’s perfectly possible for a limited company to get a buy to let mortgage.

It’s a lot easier if the limited company is set up exclusively for the purpose of buying property to rent out. This is called a special purpose vehicle (SPV). It is set up via Companies House in the exact same way as any other limited company, only it needs to have a specific standard industry classification (SIC) code.

Lenders will want to see one of the following SIC codes against your limited company SPV on Companies House:

  • 68100 – Buying and selling of own real estate
  • 62809 – Other letting and operating of own or leased real estate
  • 68320 – Management of real estate
  • 68201 – Renting and operating of housing association real estate

Once the company is showing on Companies House and has a bank account in its name, you can start applying for a limited company buy to let mortgage. The company doesn’t need to have been incorporated for a certain length of time before applying.

All of the directors need to be listed on Companies House too. Lenders may impose restrictions on the number of directors a company is allowed to have; usually no more than four are permitted. 

The directors will undergo credit checks as part of the application process, and a director with bad credit will impact which lender the company can apply to. Each director might also have to give a personal guarantee that they will repay the mortgage if the company folds.

There are lenders who can consider lending to trading limited companies but criteria is a lot stricter and options are more limited.

Can I transfer a property I already own into a limited company?

Yes, it is possible to do this. However, transferring from an individual name to a limited company is seen as a purchase, so the company would be liable for stamp duty. You may also have to pay capital gains tax. We recommend speaking to a tax advisor first to find out how doing this would impact you.

Are limited company mortgages more expensive?

Limited company buy to let mortgages do tend to be more expensive than buy to let mortgages for individuals. The rates are usually a bit higher and the mortgage can come with fees such as a product fee, assessment fee, and valuation fee.

Stamp duty with a 3% surcharge is also payable on purchases.

How much can I borrow on a mortgage?

How much you can borrow is usually determined by the amount of rent the property might achieve from paying tenants. This figure is set by the lender’s valuer. It is often based on what similar properties in the area are rented for.

Lenders then apply a background stress test to work out how much you can borrow. They want the property to be self-financing. In other words, you shouldn’t be having to put some of your own money in every month to cover the mortgage and associated costs. The rent alone should pay for it and leave you with a bit of profit.

The lender might therefore say that they need the rent to be 125% of the monthly mortgage payment if the mortgage interest rate was 6.5%. The exact calculation will depend on the individual lender. Some have different calculations depending on factors like whether you want a two or five year fixed rate.

Some types of buy to let mortgages are not regulated by the FCA.

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