When it comes to property investment, one approach that continues to gain traction is the use of “buy-to-let mortgages for a limited company”. This method involves establishing a limited company, often referred to as a Special Purpose Vehicle (SPV), specifically for the purpose of buying, renting out, and selling property. The purchase of the property is funded by a buy-to-let mortgage, which is taken out in the name of the limited company rather than an individual. With potential benefits, including tax efficiency, flexible profit distribution, and limited personal liability, it’s no surprise that an increasing number of investors are exploring this strategy. This guide will delve into the details of buy-to-let mortgages for a limited company, discussing their benefits, drawbacks, and key considerations to help you navigate this complex yet potentially rewarding field.
A buy-to-let mortgage for a limited company is a loan specifically designed for companies that are set up to buy and rent out residential property. It functions much like a personal buy-to-let mortgage, but it’s issued to a limited company rather than an individual.
The property purchased is typically held as a form of business investment. The rental income generated from the property is often used to cover mortgage payments and maintenance costs and to generate profit for the company.
One key difference between a personal buy-to-let mortgage and one for a limited company is that the company is legally separate from its owners. So, the company owns the property and is responsible for the mortgage, and any liabilities are attached to the company, not its owners or directors.
There can also be significant tax differences. Limited company buy-to-let mortgages may be more tax efficient for some, as rental income is subject to corporation tax rates (which can be lower than personal income tax rates), and mortgage interest can be fully deducted as a business expense.
However, these mortgages can also be more complex and costly to set up and manage, and not all lenders offer them. They often require a larger deposit, and the interest rates may be higher than for personal buy-to-let mortgages. It’s important to take professional advice to understand the financial and legal implications before proceeding with a limited company buy-to-let mortgage.
Yes, a limited company can get a buy-to-let mortgage. This type of mortgage is specifically designed for companies that are set up to buy and rent out residential property. The mortgage is issued to the limited company rather than an individual.
A limited company that buys property to rent out will typically do so as a form of business investment. The rental income generated from the property is often used to cover mortgage payments and maintenance costs and to generate profit for the company.
However, it’s worth noting that the process for getting a buy-to-let mortgage as a limited company can be more complex and rigorous than getting a personal buy-to-let mortgage.
Lenders will usually need to assess the financial health of the company and the creditworthiness of its directors or shareholders. They may also require a higher deposit and charge higher interest rates than for a personal buy-to-let mortgage.
A buy-to-let mortgage for a limited company works in a similar way to a standard mortgage but with some key differences. Here is a step-by-step breakdown of how it typically works:
Setting up a buy-to-let mortgage for a limited company involves several key steps:
The deposit required for a limited company buy-to-let mortgage can vary, but it is typically higher than that for a standard residential mortgage. Lenders typically require a deposit of at least 20-25% of the property’s value, although this could be higher depending on the lender’s criteria and the specific circumstances of the borrower.
Some factors that might influence the size of the required deposit include the company’s financial situation, the creditworthiness of its directors or shareholders, the expected rental income from the property, and the overall lending market conditions.
However, it’s important to keep in mind that lending criteria can change over time, so for the most accurate and up-to-date information, you should consult with a mortgage broker or directly with potential lenders.
The interest rate for a buy-to-let mortgage for a limited company can vary depending on a variety of factors, including the lender, the creditworthiness of the company and its directors or shareholders, the size of the deposit, the terms of the mortgage, the expected rental income from the property, and the overall conditions in the lending market.
The interest rates for these types of mortgages are typically higher than for standard residential mortgages. You might expect rates to typically fall within a range of around 2% to 5%, although these can vary significantly.
It’s also worth noting that limited company buy-to-let mortgages can come in both fixed-rate and variable-rate versions. With a fixed-rate mortgage, the interest rate is set for a certain period of time, typically 2-5 years, but potentially longer. With a variable-rate mortgage, the interest rate can change over time, typically in line with changes in the Bank of England base rate or the lender’s standard variable rate (SVR).
However, these rates can change over time and vary between different lenders, so it’s essential to consult with a mortgage broker or directly with potential lenders to get the most accurate and up-to-date information.
Yes, there are lenders that specialise in buy-to-let mortgages for limited companies. These often include challenger banks, building societies, and specialist buy-to-let lenders. However, it’s important to note that not all mainstream banks or lenders offer this type of mortgage, as they are typically more niche and complex than standard residential mortgages.
Here are a few lenders known for offering buy-to-let mortgages for limited companies:
There are several key differences between a buy-to-let mortgage for a limited company (often known as a “corporate buy-to-let”) and a personal buy-to-let mortgage:
Borrower: In a limited company buy-to-let mortgage, the borrower is a company, not an individual. The company is legally separate from its owners, so the company owns the property and is responsible for the mortgage.
Tax Treatment: One of the biggest differences lies in the tax treatment. Rental income from a property owned by a limited company is subject to corporation tax, which might be lower than personal income tax rates, especially for higher-rate taxpayers. In addition, mortgage interest can be fully offset against profits for tax purposes in a limited company, which is no longer the case for individual landlords due to tax changes phased in since April 2017.
Application Process: The application process can be more complex for limited company buy-to-let mortgages. Lenders will typically assess the financial status of the company, the creditworthiness of its directors or shareholders and potentially require personal guarantees.
Mortgage Products and Rates: Not all lenders offer buy-to-let mortgages for limited companies, so the range of products available may be more limited. Interest rates and fees can also be higher for limited company buy-to-let mortgages compared to personal ones.
Legal and Accountancy Costs: Setting up and running a limited company involves legal and accountancy work, so there may be additional costs to consider. These include company formation costs, annual accountancy fees, and additional conveyancing costs when buying property through a company.
Profits and Cash Extraction: Profits from the rental income stay within the company until they are extracted, typically as dividends. These dividends may be subject to personal tax depending on the individual’s circumstances. In contrast, profits from personal buy-to-let property are received directly by the individual and taxed as income.
Buy-to-let mortgages for limited companies can often come with higher costs compared to personal buy-to-let mortgages. This is due to several reasons:
Whether you need a commercial mortgage depends on the nature of the property and the intended use. Here are the common scenarios:
Residential Buy-to-Let: If you, as an individual or through a limited company, are buying a residential property to rent out, you typically need a buy-to-let mortgage. A commercial mortgage is not usually required.
Commercial Properties: If you’re buying a property for commercial use, such as a shop, office, warehouse, or factory, you’ll typically need a commercial mortgage.
Mixed-Use Properties: If the property has both residential and commercial elements, such as a shop with a flat above it, you might need a commercial or a semi-commercial mortgage, depending on the lender and the specifics of the property.
Residential Property Development: If you’re buying a residential property to develop and sell on rather than rent out, you might need a specific type of commercial mortgage known as a development loan.
Large Residential Portfolios: If you (or your limited company) own a large number of residential properties, some lenders might consider this as a commercial operation and require a commercial mortgage.
The eligibility criteria for a buy-to-let mortgage for a limited company can vary between lenders, but here are some of the common factors they may consider:
Company Type: Some lenders may only lend to limited companies that are Special Purpose Vehicles (SPVs). These are companies set up specifically for holding and renting out property. The lender will look for a SIC (Standard Industrial Classification) code relating to property rental.
Company Status: The lender will want to see that the company is in good financial health. They may ask for company accounts, details of any debts or liabilities, and information about the company’s income.
Directors and Shareholders: The lender will likely look at the credit histories of the company’s directors and major shareholders. They may also require personal guarantees from them.
Deposit: The lender will typically require a deposit of at least 20-25% of the property’s value, although this could be higher depending on the specific circumstances.
Rental Income: The lender will want to see that the expected rental income from the property will cover the mortgage repayments, typically by at least 125-130%. This is known as the rental coverage ratio.
Property: The lender will need to carry out a valuation on the property to ensure it is suitable security for the loan. They may have specific criteria for the types of property they will lend against (e.g., no high-rise flats, no non-standard construction).
Experience: Some lenders may prefer, or even require, borrowers to have prior experience in property investment or being a landlord.
These are general guidelines, and the exact criteria will vary between lenders. Therefore, it’s always a good idea to get professional advice from a mortgage broker or financial advisor who understands the buy-to-let market and can help you find a mortgage that suits your specific circumstances.
The terms and fees associated with a buy-to-let mortgage for a limited company can vary greatly depending on the lender and your individual circumstances. However, here are some common elements you may encounter:
A Special Purpose Vehicle (SPV), also known as a Special Purpose Entity (SPE), is a legal entity that is created for a specific, often temporary, objective. SPVs are usually subsidiaries of a parent company and are designed to isolate financial risk from the parent company. They are often used in complex financings, securitisation, risk sharing, and property investment.
In the context of buy-to-let mortgages for limited companies, an SPV is typically a limited company that has been set up specifically for the purpose of buying, selling, and letting property. The purpose of the company is often clearly stated in its Memorandum and Articles of Association and can be identified through its Standard Industrial Classification (SIC) code, which is used to classify the company’s nature of business.
Using an SPV for property investment can have several advantages, such as limited liability, tax efficiency, and making it easier to manage and sell the property portfolio. Some lenders prefer to lend to SPVs for buy-to-let mortgages, as their financials are typically simpler to assess, with the primary income and expenses related directly to the property.
However, setting up and managing an SPV can also involve additional costs and administrative work compared to buying property as an individual, and there can be implications for tax and mortgage interest relief. Therefore, it’s important to seek professional advice before deciding to set up an SPV for property investment.
Buying a property through a limited company has several tax implications. Some of these can be advantageous, particularly for higher and additional rate taxpayers, but there can also be complexities and potential drawbacks. Here are some key tax considerations:
Corporation Tax: A limited company is subject to corporation tax on its profits. The corporation tax rate is lower than the higher and additional rates of personal income tax in the UK.
Income Tax: If the company makes a profit from renting out the property, this profit (after paying corporation tax) can be distributed to the shareholders as dividends. These dividends are subject to personal tax but at lower rates than income tax and with a tax-free allowance (although the allowance is lower than the personal allowance for income tax).
Mortgage Interest: A key advantage of buying property through a limited company is that the full cost of mortgage interest can be offset against rental income for tax purposes. This is no longer the case for individual landlords, following changes phased in from April 2017.
Stamp Duty Land Tax (SDLT): The same rates of SDLT apply whether a property is bought by an individual or a limited company. However, if the property is being bought as a second home or rental property, a 3% surcharge applies on top of the standard rates.
Capital Gains Tax (CGT): When the property is sold, a limited company will pay corporation tax on any gain in value rather than CGT. This may be advantageous as corporation tax rates are generally lower than CGT rates for higher-rate taxpayers. However, companies do not get the benefit of the annual tax-free allowance that applies to individuals for CGT.
Annual Tax on Enveloped Dwellings (ATED): This is a tax that applies to properties owned by a company (or ‘enveloped’ in a company) that are worth more than £500,000 and are not rented out to a third party. However, most buy-to-let properties will be exempt as long as they are being commercially let.
Choosing the right commercial buy-to-let mortgage for a limited company involves careful consideration of a number of factors.
Here are some steps and considerations that may help you in this decision:
Define Your Goals and Needs: Consider what you need from a mortgage. How long do you want the term to be? How much can you afford to put down as a deposit? What sort of monthly repayments can you afford? Do you prefer the stability of a fixed-rate mortgage or the potential savings of a variable rate? Do you plan to pay off the mortgage early?
Consider the Costs: Look at the full cost of the mortgage, including the interest rate, any fees, and the total amount you’ll repay over the term of the mortgage. Be sure to also factor in the costs of running a limited company and the tax implications.
Research Lenders: Not all lenders offer commercial buy-to-let mortgages for limited companies, so you’ll need to find those that do. Compare their offerings and see which ones have the most favourable terms for your situation. Look at customer reviews and their reputations in the industry.
Seek Professional Advice: This is a complex decision with significant financial implications, so it’s wise to get advice from a professional. A mortgage broker with experience in buy-to-let mortgages for limited companies can help you find suitable products and guide you through the application process.
Check Eligibility Criteria: Before you apply, check the lender’s eligibility criteria to make sure you qualify. Some lenders may only lend to certain types of companies or require a certain level of rental coverage.
Think About Future Plans: Consider your long-term plans for the property and how the mortgage fits into these. For example, if you plan to sell the property in a few years, you might want a mortgage without early repayment charges.
Consider Legal Implications: Finally, remember that a mortgage is a legal agreement. It’s a good idea to have a solicitor review the mortgage offer and any associated documents before you sign.
Remember, the right mortgage for you depends on your individual circumstances, goals, and risk tolerance. It’s important to take the time to understand your options and make an informed decision.
Yes, you typically need a specialist mortgage when buying a property to let through a limited company. These are often referred to as “limited company buy-to-let mortgages” or “corporate buy-to-let mortgages.”
Standard residential mortgages are not suitable for buy-to-let properties, and standard buy-to-let mortgages are typically designed for individuals rather than companies. A limited company buy-to-let mortgage is specifically tailored to the needs and circumstances of companies that are set up to buy and rent out residential property.
These types of mortgages are considered commercial transactions. The lending criteria, interest rates, fees, and legal regulations can be different from standard buy-to-let mortgages for individuals. Not all lenders offer these types of mortgages, so you may need to approach a specialist lender or use a mortgage broker with experience in this area.
While the entire mortgage process may not be completely online due to regulatory requirements and the need for documentation verification, many lenders and brokers do offer an online application process for limited-company mortgages. The specifics can vary from one lender or broker to another, but the process typically involves the following steps:
Research: You can research different lenders and brokers online to compare their offerings, terms, and conditions for limited company buy-to-let mortgages.
Enquiry or Application: Many lenders and brokers have online enquiry or application forms where you can provide initial details about your limited company, the property you wish to purchase, and your borrowing needs. This allows them to assess whether you may be eligible for their products.
Initial Decision: Based on your enquiry or application, the lender or broker may be able to give an initial decision online about whether you may qualify for a mortgage.
Documentation: While you may be able to upload some documents electronically, such as company accounts or identification documents, you may also need to send some original or certified documents by post or present them in person.
Valuation: The lender will need to carry out a valuation of the property. This usually requires a visit to the property by a surveyor.
Mortgage Offer: If your application is successful, the lender will issue a mortgage offer. You may receive this online, but it will usually also be sent in a physical format for your records.
Completion: The final stage of the process involves legal work to transfer ownership of the property and set up the mortgage. This is typically done by a solicitor and may involve some physical paperwork and face-to-face meetings.
So while not entirely online, the process of getting a limited company mortgage can be initiated and partly completed through online platforms. As always, it’s crucial to thoroughly research potential lenders and brokers and consider seeking independent financial advice before proceeding with a mortgage application.
Yes, it is possible to get an interest-only mortgage for a limited company buy-to-let property. An interest-only mortgage is a type of mortgage where your monthly payments only cover the interest on the loan, and the original loan amount (the principal) is repaid in full at the end of the mortgage term.
Interest-only mortgages are quite common in the buy-to-let market, as they can help to maximise cash flow. The idea is that landlords can use the rental income to cover the interest payments and then either sell the property at the end of the mortgage term to repay the capital or refinance the property.
However, there are some important things to consider with interest-only mortgages:
The maximum age for limited company buy-to-let (BTL) mortgages generally refers to the maximum age of the directors or shareholders at the end of the mortgage term, as companies themselves do not have an age.
While the specific criteria can vary among different lenders, many lenders are relatively flexible about the maximum age for limited company buy-to-let mortgages. Some lenders have no upper age limit at all, while others might set a maximum age at the end of the mortgage term, typically between 70 to 85 years old.
However, it’s important to note that the older the director or shareholder is, the more restricted the choice of lenders might become, as some lenders perceive a higher risk with advancing years due to potential income reduction after retirement.
Yes, a limited company can certainly have multiple buy-to-let mortgages. In fact, many property investment companies do this as a way to expand their portfolio of rental properties.
Each mortgage will typically be secured against a separate property. This means if the company defaults on one mortgage, only the property tied to that mortgage would be at risk, not the entire portfolio.
There are, however, a few things to keep in mind:
Getting a buy-to-let mortgage through a limited company can offer a number of potential advantages, particularly in terms of tax efficiency and liability:
Tax Efficiency: One of the main advantages is the potential for greater tax efficiency. Corporations are subject to corporation tax on their profits, which can be lower than the personal income tax rates that individual landlords might pay on their rental income. Also, a company can claim full tax relief on mortgage interest, something that has been phased out for individual landlords since 2017.
Limited Liability: As the company is a separate legal entity, it is the company that holds the liability for the mortgage, not the individual directors or shareholders. This can protect your personal assets if the company runs into financial difficulties.
Potential for Growth: A limited company structure can be more suitable for growing a property portfolio. The rental income can be retained within the company to fund further property purchases.
Flexibility in Profit Distribution: Profits from the company can be distributed in a flexible manner. For example, they can be issued as dividends to shareholders, which may be taxed at a lower rate than personal income.
Potential Inheritance Tax (IHT) Planning: A company structure can potentially provide more options for planning to mitigate inheritance tax, although this is a complex area, and professional advice should be sought.
However, there are also potential downsides and complexities to consider, such as the cost and administrative work of setting up and running a company, the potential for higher mortgage rates, and the implications for capital gains tax. It’s important to seek professional advice to fully understand the implications before deciding to invest in buy-to-let property through a limited company.
While taking out a buy-to-let mortgage via a limited company can have its advantages, it’s crucial to understand the potential disadvantages and complexities associated with this approach:
Higher Mortgage Rates: Limited company buy-to-let mortgages can sometimes come with higher interest rates compared to personal buy-to-let mortgages. This is because there are fewer lenders in this market, reducing competition.
Setup and Running Costs: Setting up a limited company incurs costs, such as incorporation fees and ongoing accountancy fees. You’ll also need to complete annual accounts and returns, which can increase administrative duties and expenses.
Complex Taxation: While corporation tax rates are lower than higher personal income tax rates, dividends taken from the company will be subject to personal taxation, which could offset some of the tax benefits. Additionally, extracting money from the company can be more complex and potentially subject to more taxation.
Capital Gains Tax: When a company sells a property, it pays corporation tax on the gains. While this can be a lower rate than the personal Capital Gains Tax rate, companies do not have access to the annual tax-free allowance that individuals do.
Additional Stamp Duty: In the UK, an additional 3% Stamp Duty Land Tax is usually payable on buy-to-let properties, including those bought by companies.
Limited Choice of Lenders: Not all mortgage lenders offer mortgages to limited companies, which can restrict your options.
Potential Difficulty in Transferring Property: Transferring property out of a limited company at a later date can be complicated and may trigger capital gains tax and stamp duty charges.
Yes, you can typically get a limited company buy-to-let mortgage anywhere in the UK, provided you meet the lender’s eligibility criteria. However, the specific terms and availability of these mortgages can vary between different areas.
Lenders will consider a variety of factors when deciding whether to offer a mortgage, including the location and condition of the property, the rental market in the area, and the financial status of the company. Each lender will have their own policies and criteria, so what’s available in one area might not be the same in another.
In general, you should be able to find a limited company buy-to-let mortgage regardless of where in the UK you’re looking to invest, whether it’s England, Scotland, Wales, or
Northern Ireland. It’s always worth speaking to a mortgage broker or financial advisor, as they can help you navigate the market and find the best mortgage for your needs.
Keep in mind that while the process and regulations for getting a limited company buy-to-let mortgage are broadly similar across the UK, and there can be some differences in property law and landlord regulations between England, Scotland, Wales, and Northern Ireland. So it’s also a good idea to seek local advice when investing in a new area.
The terms “Limited Company”, “LTD”, and “SPV” are often used in discussions around company buy-to-let mortgages, and it can be helpful to understand the distinctions between them.
So, a Limited Company and LTD refer to the same type of company, while an SPV is a particular type of Limited Company that is set up specifically for property investment. When it comes to mortgages, some lenders will only lend to SPVs, some will lend to any type of Limited Company, and others may lend to individuals and companies. It’s important to understand a lender’s criteria and seek professional advice when choosing a mortgage.