Limited Company

A Buy-to-Let mortgage facilitated through a limited company represents a strategic approach wherein the mortgage is secured under the auspices of a corporate entity rather than being personally registered. The impetus for this approach gained traction in the wake of significant alterations to Stamp Duty and the tax relief on Buy-to-Let mortgage interest in 2016. These changes resulted in an increased financial burden for individuals seeking to expand their property portfolios.

In response to the amended tax landscape, a discernible shift occurred as numerous property investors opted to establish limited companies for their Buy-to-Let endeavors. The primary motivation behind this transition was the desire to mitigate the adverse impact of reduced tax relief, ultimately fostering a more tax-efficient structure for managing property investments.

By opting for a Buy-to-Let mortgage within the framework of a limited company, landlords can navigate the evolving tax regulations more strategically. This approach allows them to safeguard their financial interests and optimize their tax positions, thereby minimizing the impact of the aforementioned changes introduced in 2016.

In essence, the decision to utilize a limited company for acquiring Buy-to-Let mortgages transcends a mere administrative shift; it embodies a proactive response to the evolving financial landscape. Property investors, recognizing the need for financial prudence, have embraced this structured approach to not only shield their portfolios from increased costs but also to capitalize on the potential benefits afforded by corporate tax structures.

A limited company buy-to-let mortgage is quite similar to a regular buy-to-let mortgage, but the key difference lies in how lenders evaluate if you qualify for the loan. Many traditional mortgage providers on the main streets are a bit hesitant to lend to limited companies because they consider them riskier.

Since a lot of limited companies applying for this type of loan are basically self-employed landlords, lenders worry more about the possibility of the business not doing well. This can make it a bit more challenging to find and secure a limited company buy-to-let mortgage.

The good news is that as the number of limited companies looking for these mortgages increases, more options and lenders become available to cater to them. This means that even though it might be a bit tricky, there are still more choices out there for limited companies in need of a buy-to-let mortgage.

The requirements for a regular Buy-to-Let mortgage and one through a limited company are pretty much identical. The evaluation process considers the property and its rental income in the same manner. The maximum loan you can get falls between 75% and 85% of the property value, depending on the rent it currently earns or is expected to generate.

For the limited company option, it's crucial to establish the company with a specific code called SIC (Standard Industrial Classification). This code sets the rule that the company can only engage in buying and renting out property; no other activities are allowed. Usually, the codes used for this purpose are: [insert specific codes here].

• 68100: Buying and selling 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

Setting up a buy-to-let company is a quick and straightforward process, taking just 15 minutes and can be done online. However, we strongly recommend getting advice from an accountant or legal advisor before making significant decisions. Additional information on setting up a property company for buy-to-let purchases can be found below.

Planning for the future becomes easier with a limited company. Transferring ownership to another person is simpler compared to privately held property. The property stays under the company's ownership, potentially shielding the transaction from Stamp Duty, Inheritance Tax, and Capital Gains Tax. This becomes beneficial if you plan to pass your business on to family members in the future.

Expanding your property portfolio could be faster by retaining profits within the company. This strategy helps protect you from tax liabilities because when selling a buy-to-let property, it's considered a business profit rather than a personal capital gain. This can enable you to use more of your earnings to grow your property portfolio at a quicker pace.

Having a limited liability company means you're not personally responsible for the company's debts, including those related to buy-to-lets. However, it's important to note that personal guarantees, often required by mortgage lenders, may still apply.

When a limited company sells a property, they don't get a Capital Gains Tax (CGT) Allowance. Unlike individuals who sell a buy-to-let property and receive a specific allowance (an amount exempt from CGT), limited companies don't enjoy this benefit. For instance, in the 2022/23 tax year, a private landlord selling their property would have a CGT allowance of £12,300, but this was reduced to £6,000 from the start of the 2023/24 tax year. While individuals pay CGT on amounts exceeding their allowance, limited companies, dealing with buy-to-lets, don't pay CGT but are subject to Corporation Tax when withdrawing profits from the business. The financial outcome depends on the profit gained from the buy-to-let sale.

Setting up a limited company involves considering new costs and responsibilities. These typically include preparing accounts (a legal requirement), paying Corporation Tax, filing with Companies House, legal fees, and potentially annual auditing. Accountants might charge higher fees for Companies House-related tasks.

Limited companies often face slightly higher interest rates and fees from lenders compared to individual buy-to-let mortgages.

Limited companies seeking buy-to-let mortgages encounter limitations in lender options. Not all buy-to-let lenders extend their services to limited companies, and those that do usually offer a more limited range of products.

In the mortgage world, "SPV" stands for a specific type of limited company designed specifically for Buy-to-Let properties. An SPV is formed as a tax-efficient method for landlords to manage multiple Buy-to-Let properties. Essentially, it's a limited company with limitations on its business activities.

An SPV, or a special type of limited company for Buy-to-Let properties, has advantages for expanding your property portfolio. Instead of paying personal Income Tax, an SPV is subject to Corporation Tax on its profits, typically at a rate of 19%. This can be beneficial for higher rate taxpayers who might otherwise face a 40% or higher tax rate, leaving more capital for reinvestment.

Obtaining a mortgage for a buy-to-let property can be smoother with an SPV compared to a regular trading company. Since an SPV is separate from your personal financial obligations, mortgage providers may find it easier to assess and may offer more favorable mortgage terms. The streamlined connection of the SPV's income and liabilities to the property simplifies the evaluation of its ability to cover mortgage payments and management fees. Consequently, SPVs often have access to a broader range of mortgage products compared to other types of limited companies.

In contrast, trading companies, with their diverse income sources and liabilities, pose a greater risk for mortgage providers. While it's still possible to secure a buy-to-let mortgage as a trading company, the options and choices of mortgage providers and products may be more limited.

Yes, anyone can set up a new special purpose vehicle (SPV), but it's crucial to make sure it's the right choice for you. Consulting with industry experts like a broker and an accountant can help you confirm whether this strategy suits your needs.

As long as the SPV is established with an acceptable Standard Industrial Classification (SIC) code, it should be eligible to apply for a mortgage.

During the application process, the director(s) will undergo credit scoring to demonstrate the company's creditworthiness. Since the company won't have its own trading or credit history, the lender will also require proof of the directors' income to assess the underlying affordability.

An SPV is essentially a limited company created specifically to own and handle income-generating rental properties. Just like any other limited company, you can take income and dividends from the company, and the profits kept within it can be used to expand your property portfolio.

However, if your limited company earns income from any business activities other than your buy-to-let property, it is classified as a trading company. It's crucial to note that most lenders prefer to lend to SPV limited companies. This preference stems from the belief that including other business activities introduces an element of risk. Nonetheless, there are some specialized lenders who do provide buy-to-let mortgages to trading companies.

An SPV can either be an existing trading company repurposed solely for your buy-to-let business or a completely new company with no previous trading history. Some lenders prefer the latter option as it removes any potential risks associated with the company's past trading activities.

Setting up an SPV or acquiring an existing limited company for future SPV use is surprisingly simple. You can register a new company online for about approx £20 through Companies House, and the process usually takes 24 hours to complete.

Additionally, your company needs a Standard Industrial Classification (SIC) code, specifying the type of business it engages in. Most lenders will require your SPV to have the correct SIC code specifically related to property letting, which Companies House categorizes under section L for real estate activities.