There was a surge in applications for buy-to-let mortgages from limited companies as landlords prepared for tax hikes which started in April.
The latest Buy-to-Let Index found that 38% of applications by December 2015 were from limited companies, up from 15% in October – the month before the tax change was announced in the Autumn Statement.
Analysis by property tax specialists at Jeffreys Henry LLP shows higher and additional rate tax payers investing in buy-to-let property could potentially benefit by holding property with rental income in a limited company. Not only can limited companies offset the full mortgage interest payments against its tax bill, rental profits are taxed at the corporation tax rate of 20%, as opposed to up to 45% if held personally. Corporation tax rate will fall to 19% in 2017 and 17% by 2020. Learn More.
If you are considering investing in buy-to-let properties through a limited company, it is important you understand the advantages, disadvantages and responsibilities associated with company ownership before making a decision.
Here are the answers to the most common questions about limited company buy to let mortgages from our FCA-regulated financial services company, Jeffreys Henry Financial Services Ltd:-
Are Limited Company buy to let mortgages hard to get?
Not at all. Even though there are fewer lenders offering these products we help investors with this type of transaction on a regular basis. According to our Buy-to-Let mortgage rate finder and calculator, of the 800+ buy to mortgage rates currently on the market, 110 are available to limited companies.
Are Buy-to-Let mortgages for Limited Company’s more expensive?
In general, yes, they are. I would say that, on average, you can expect to pay around 1-1.5% more on interest rates, plus the arrangement fees tend to be charged as a percentage rather than a fixed amount. Also, it’s worth pointing out that it is very normal for the lender to want their own solicitor to act for them so you may end up covering the cost of two legal bills. However, while the pricing is higher, many landlords find that the tax advantages outweigh the additional costs, although you should always check whether this applies to you with a qualified accountant.
Will I have to provide a personal guarantee if I take out a Limited Company Buy-to-Let mortgage?
Yes. All lenders will require that the director’s/majority shareholders provide personal guarantees.
Does a personal guarantee mean the lender will take a charge on my home?
No, it does not. A personal guarantee means that if the lender has to repossess the property and after sale, they are still owed money, the person offering the personal guarantee will be liable for that money. This would be same if you had borrowed personally.
Can I get a fixed rate buy to let mortgage if borrowing through a Limited Company?
Yes, lenders are offering 2, 3 and 5 year fixed rates as well as discounts and trackers.
Will I have to put in a bigger deposit if I borrow through a Limited Company?
No. Like rates for individuals, Limited Company Buy-to-Let mortgages are available to a maximum of 85% loan to value; however, there is much more choice to 75% LTV.
Is there a particular type of Limited Company I should establish in order purchase Buy-to-Let properties?
In the mortgage world, there are two types of companies. The first are those which only hold property and do nothing else – these are known Special Purpose Vehicles (or SPVs). Companies which do anything other than this are known as trading companies. Most buy to let lenders which lend to limited companies will lend only to SPVs although there are a handful which will lend to trading companies.
Can I borrow through a newly created Limited Company if it does not have any accounts?
Yes, you can. Directors and/or majority shareholders are always required to offer a personal guarantee and as such, the lender’s focus is on these people and the mortgage is underwritten on them. Therefore, a new company is no problem as long as the director’s/majority shareholders tick the right boxes.
How will my taxation work through a limited company?
Holding investment property in a limited company is not suitable for every landlord and careful planning is required before taking any action.
Jeffreys Henry LLP is one of the UK’s leading Property Tax Specialists with clients including buy-to-let landlords with 5+ properties, property investors, developers, housing associations and related businesses such as chartered surveyors, architects, consulting engineers and estate agents. Our FCA-regulated financial services team, Jeffreys Henry Financial Services Ltd, can advice on suitable limited company BTL mortgages.
Jeffreys Henry Financial Services is an appointed representative of Vintage Financial Limited which is authorised and regulated by the Financial Conduct Authority. FCA number 190612.