Limited company buy to let mortgages

During the last few years, there have been many changes to mortgage regulation. There are several regulators, all of which have particularly got their teeth into buy to let mortgages.

Therefore, subsequent Chancellor of the Exchequers have introduced tougher tax legislation on landlords and landladies.

All of this has made having a portfolio of investment properties less attractive and less profitable.

Limited company buy to let mortgages were around in the early 2000s however largely disappeared after the credit crunch of the last decade. Though, more tax advisers and accountants began recommending using a limited company as a property purchasing vehicle in light of these changes. And the mortgage market has slowly responded with several lenders now offering this facility.

What this means is instead of an individual or individuals purchasing an investment property in their name or names, a limited company owned by those individuals purchases the property.

What are the advantages?

One of the key benefits is that limited companies are able to retain profits meaning that the individuals are less likely to become high rate tax payers. In addition, mortgage interest relief does not apply to limited companies.

There is no income tax to pay when you reinvest your profits into further property purchases.

You can also withdraw personal money back out of the company as a director’s loan.

So, summing up, you would pay corporation tax on your tax liability, rather than higher rate tax, potentially halving your tax bill.

Also, because the company owns the property, if you want to pass the property on or sell it to somebody else, you can simply change the directors or shareholders in the company, which is much easier and less costly than a sale and purchase.

Not only this; if the property is in a company name and your tenant or tenants default on utility bills, you cannot be held personally liable by the utility company.

What are the disadvantages?

Because it is a smaller market, mortgage rates and fees will be higher than those for an individual buy to let.

Your solicitor’s fees when purchasing or refinancing will also be higher.

As you would expect, you will also have to file accounts with HMRC and submit the usual documentation that any other limited company would.

If you have investment properties already in individual names and wish to transfer these to the limited company, you would have to pay stamp duty and potentially Capital Gains Tax (CGT) as there is no CGT allowance when a company sells a property.

So, where to start?

There is no question that if you are considering this route for one or more property purchases, you should seek advice from a qualified mortgage expert.

Every purchaser will have their own set of personal and financial circumstances which means what might be right for one, may not necessarily be right for another.

Here at Euxton, we have plenty of experience in this area and will always happily chat through your own set of circumstances with you, advising you on what is the right next step for you.

December 2018