Limited company buy-to-let mortgage options for investors

Limited company buy-to-let mortgage options for investors

Legislation introduced in April 2017 reducing mortgage interest tax relief for higher rate taxpayers has forced landlords to seek more tax efficient ways of managing their investments.

Particular interest has centred on setting up limited companies to manage rental income. Many warnings have been given about this procedure, but for landlords who are higher rate taxpayers and have, or plan to have, a substantial property portfolio, it makes sense. The corporation tax attracted by a limited company is considerably lower than higher rate income tax, and there are other financial advantages.

High street lenders have been wary of this market, so initially the number of lenders offering mortgages to limited companies was small. With a limited product range, interest rates tended to be high. As demand grows, more lenders are coming into the field, and the interest rates on these mortgages may come down.

How to set up a limited company

The easiest option is to set up a Special Purpose Vehicle (SPV) limited company, a company that trades only in rental property. Here’s more information on how to set up a limited company. You can either register your company yourself or ask your accountant to do it for you.
It’s worth remembering that, since the newly formed SPV will have no accounts, the lender will initially demand that the directors and majority shareholders guarantee the mortgage personally. However, since lenders find mortgage applications from SPVs easier to underwrite than applications from other limited companies, there are more options available, making the market more competitive.

What if you already own a limited company?

At first sight it would seem logical to add your rental properties to a limited company that you already own. However, mortgage advisors are experts only in the property business. Before they will approve a mortgage for your limited company, they have to ascertain the risks associated with the other trade in which your company is involved. Since relatively few lenders are willing to make this effort and take on a new risk, the price of these mortgages tends to be high, and you may not end up with the best deal.

Transferring property you already own to a limited company

Rental property that you already own personally cannot be transferred into the limited company. Legally, you, as an individual, have to sell it to the company. Unfortunately, this procedure will attract both Capital Gains Tax and Stamp Duty.

Which mortgage should you choose?

With the market in buy-to-let mortgages for limited companies expanding, more and more comparison websites are coming along.

How can you be sure you’re making the right decision?

As always, it’s vital to check your own position with the professionals. With years of experience helping landlords maximise their assets, we’d love to hear from you and help you find the best solution for your personal property situation. Get in touch.

Getting in touch

ANDREW REEVES - Westminster

81 Rochester Row, Westminster, London SW1P 1LJ
Sales: 02078811310
Lettings: 02078811315


63 Lupus Street, Pimlico, London SW1V 3EY
Sales: 02078811320
Lettings: 02078811325