Limited company buy to let mortgages: A comprehensive guide
If you’re a property investor looking to expand your portfolio, limited company buy to let mortgages can offer significant advantages. These specialised mortgages allow you to purchase rental properties through a limited company rather than in your own name. In this article, we’ll delve into the intricacies of how these mortgages work, explore their benefits an discuss eligibility criteria, and highlight some.
Understanding limited company buy to let mortgages
1. What is a limited company buy-to-let mortgage?
- A limited company buy to let mortgage is specifically designed for landlords who want to buy and own properties through a company structure. Here are the key points to understand:
- Special Purpose Vehicle (SPV): To qualify for a limited company buy-to-let mortgage, your company must be set up as a Special Purpose Vehicle (SPV). An SPV is a company structure specifically designed for owning properties. It focuses solely on property investments, including buying, letting, and selling.
- Tax benefits: Many investors choose to use an SPV because of the tax benefits. By owning properties through a limited company, you can reduce the tax burden on your business. Instead of paying income tax on rental income, you’ll pay corporation tax on the profit. However, you’ll still need to pay income tax on other personal income.
- Stamp Duty: Limited companies are subject to stamp duty, but the rates are the same as those for individuals when it comes to non-residential properties.
- Guarantors: Guarantors of the SPV will need to provide personal guarantees on the loan repayments.
2. How limited company buy to let mortgages work
- Company structure: Your business must be a limited (LTD) company registered with Companies House. When setting up your Ltd company, choose the correct Standard Industrial Classification (SIC) codes related to property letting. These codes include:
- 68209: Other letting and operating of own or leased real estate.
- 68100: Buying and selling of own real estate.
3. Affordability assessment: Lenders offering limited company buy-to-let mortgages assess the affordability of directors or shareholders of the company owning the property. They ensure that the rental income from the property covers the mortgage repayment. Typically, lenders require the rental income to be at least 125% of the interest payment.
4. Not regulated by the FCA: Like most other buy-to-let mortgages, limited company buy to let mortgages are not regulated by the Financial Conduct Authority (FCA). They are considered products for businesses rather than consumers.
5. What uses and purposes can I use the limited company for: Any of the above SIC codes will allow you to buy, sell, rent, develop or hold land or property.
A typical example would be implementing the Buy Refurbish Refinance Rent strategy which would involve using a bridging loan for the initial purchase of the property, developing or refurbishing the property then refinancing the property to a Buy to Let mortgage once the development or refurbishment was complete.
Remember that each lender has its own criteria, rates, and terms. It’s essential to compare and choose the right mortgage for your specific needs.
In summary, limited company buy-to-let mortgages offer tax advantages and flexibility for property investors. If you’re considering expanding your portfolio, explore these specialised mortgages and find the one that suits your investment strategy best.
Before you begin the application process
Consult with an expert broker: At Evolve Finance we understand how limited company buy to let mortgages work and can guide you through the intricacies of the process, helping you explore all available options.
