How does Buy To Let work for Limited Companies?
In recent years, using a limited company for the purchase of buy to let properties has become an increasingly attractive and popular option. This is predominantly due to the removal of much of the tax relief that was previously available to landlords through a personally held buy to let mortgage.
Using Special Purpose Vehicles (SPVs) for the purpose of managing your buy to let properties will open up a wider range of finance options to you. Whilst some lenders will consider non SPV companies, it’s likely that higher deposits will be required and interest rates will not be as competitive.
What are the benefits of using a LTD company to BTL
Managing your property portfolio through a limited company means you’re only liable for corporation tax. This is charged at a much lower rate than the income tax you are liable to pay on rental property income, if the buy to let mortgage is held by you personally.
Creating a Property Portfolio as a Collective
Those who use a Limited Liability Company for the purpose of buying their rental properties have the option to purchase as a collective. With a traditional BTL mortgage, the maximum number of applicants per property is two.
What are the key things you need to know before deciding its right for your company?
Expenses and Fees
You are liable for an additional 3% stamp duty than those taking out a standard residential mortgage on each rental property acquired.
Corporation tax will be due on rental income profit. This is currently charged at 18%, significantly lower than the personal income tax rate of 40% for earnings above £50k and 45% above £150k per year.
Who can apply for a Limited Company Mortgage?
Current landlords over the age of 21 and new landlords over the age of 25 may apply. There are a few other acceptance criteria to meet.
Whilst not a legal requirement, a special landlord insurance policy will be required by most lenders. The lender will also typically expect the BTL property to achieve a rental income 125% of the monthly repayments.
Most lenders will require that your existing Limited Liability Company solely deal with property rental. It is possible, however, to set up a new subsidiary or SPV at the time of application in order to fulfill this criteria.
At least two directors of the Limited Liability Company will need to be credit scored and undergo a general affordability check.
What is a Special Purpose Vehicle (SPV)?
Put simply, an SPV is a company that trades exclusively in rental properties. These can fall under a number of sic codes (standard industry codes) depending on how they are registered at Companies House. Those trading under the following sic codes will have a more straightforward application process than others:
- 68100: Buying and selling own real estate
- 68201: Renting and operating of Housing Association 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 important to note that high street banks will only provide buy to let mortgages to their own customers. You will therefore need to approach a specialist mortgage broker to access a mortgage through your SPV, except where you use the highstreet lender you hold your business account with.
Maximum and Minimum borrowing amounts?
With an SPV you can usually find an LTV (loan to value) rate offered at around 75%, meaning that you will need a 25% deposit. Whilst some lenders will consider non-SPV limited companies, you will still need at least 25% deposit in order to apply.
The actual amount that you can borrow is based on the potential rental income and the personal income of the main applicant(s) and will therefore vary depending on personal circumstances.
How can a Mortgage Broker help?
Despite the increase in popularity, obtaining a BTL mortgage through a limited company can be a very complex process. A specialist mortgage adviser will be able to guide you through the process of setting up an SPV if required, finding a landlord specific insurance broker and the mortgage application itself.
Finding a lender for this type of mortgage is not an easy task, so having a mortgage broker with whole of market access will help you locate the lender most suited to your needs.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.