Limited Company
mortgage Key facts
.
Buying a buy-to-let property as a limited company can be a good way to reduce your tax bill and protect your assets, but it’s important to be aware of the key considerations:
- Mortgage rates: Limited company mortgages typically have higher interest rates than standard buy-to-let mortgages.
- Stamp duty: You will likely pay a similar amount of stamp duty as you would if you were buying the property as an individual.
- Tax relief: You can still deduct finance costs, including mortgage interest, from your rental income as a limited company landlord.
- Corporation tax: Limited company landlords pay corporation tax on their rental income, not income tax. The current rate of corporation tax is 19%.
- Capital gains tax: Limited company landlords pay corporation tax on their capital gains, and there is no tax-free allowance. Lower rate taxpayers will pay 18% and higher rate taxpayers pay 28%. Please note that the gain can cross tax rates depending on your circumstances.
- Transfer of property: If you transfer an existing buy-to-let property from your personal name to a limited company, you may have to pay stamp duty and capital gains tax.
Limited Company
Profit extraction
There are a few ways to take money out of your limited company, including dividends, salary, pension contributions, and repaying a director’s loan (if you have one).
This example uses dividends to extract a net profit of £3,645.
Currently, each director is entitled to a £2,000 dividend allowance per year before they have to pay tax. After that, the profit is taxed at different rates depending on whether you are a basic, higher, or additional rate taxpayer.
Limited Company
landlord advantages
Being a limited company landlord has a number of advantages, but it’s important to consider whether it’s right for you and your situation.
Here are some key things to think about:
Tax benefits:
Limited company landlords may be able to pay less tax on their rental income than individual landlords.
Limited liability:
Limited company landlords have limited liability, which means that their personal assets are protected if their business goes into debt.
More flexibility:
Limited company landlords have more flexibility in terms of how they run their businesses, such as how they pay themselves and how they reinvest their profits.
More complex:
Running a limited company is more complex than being an individual landlord, as there are more administrative and accounting requirements.
Higher costs:
There are additional costs associated with running a limited company, such as company formation fees and annual filing fees.
Ultimately, the decision of whether or not to become a limited company landlord is a personal one. There are both advantages and disadvantages to consider, and the best option for you will depend on your individual circumstances.
To Qualify for
a limited company mortgage, your company must:
- Be a Special Purpose Vehicle (SPV), meaning that its sole purpose is to buy, let, and sell property.
- Be registered in England and Wales or Scotland and match records with Companies House.
- Have no more than two directors or shareholders, who must be the same people.
- Have all shareholders be directors and own 100% of the company’s shares between them. We will also accept two directors where only one is a shareholder, as long as they hold 100% of the shares.
In other words, your company must be a small, simple structure with a clear focus on property investment.
This is because limited company mortgages are seen as riskier than standard buy-to-let mortgages, and lenders want to minimize their risk by lending to companies with a proven track record and a clear business plan.
If you are considering buying a property as a limited company, it is important to talk to a qualified mortgage advisor to discuss your options and make sure you meet the eligibility criteria.
Special Purpose Vehicles
& their role in buy-to-let limited companies
Special purpose vehicles (SPVs) are a popular choice for buy-to-let limited companies because they are simple to set up and manage, and mortgage lenders find them less risky to lend to.
SPVs exist solely for the purpose of buying, letting, and selling property.
This makes them easier for mortgage lenders to underwrite, and as a result, there are more mortgage options available for SPVs with better interest rates.
While there are lenders who will lend to trading limited companies, they typically only consider those with a strong financial footing and at least two or three years of accounts.
Some lenders only consider mortgage applications from SPVs.
Additionally, mortgage lenders will not accept SPVs with more than four directors, and each director must provide a personal guarantee that they will repay the loan if the SPV folds.
When incorporating an SPV with Companies House as a new limited company, you will need to specify which of the UK’s standard industry classification codes (SIC codes) best describes its purpose.
The most common SIC codes used for SPVs are:
- 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
In other words, SPVs are a good option for buy-to-let landlords who want to access a wider range of mortgage products and interest rates, and who are willing to provide personal guarantees.
Contact.
LET’S TALK.
To discuss how we can help you please contact us using the details below for an initial chat or to arrange an appointment with one of our Advisors in Cornwall.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED UPON IT.