Limited Company
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Buy to Lets have had significant changes in recent times and the continuing growth in the number of Limited Company Landlords means this Specialist Mortgage will continue to evolve in the coming years.
Undoubtedly, there are many reasons as to why Limited Companies could support Buy to Let Landlords in today’s market.
Can a Limited company get a Buy to Let Mortgage?
Yes, a Limited Company can get a Buy to Let Mortgage. In fact this way of purchasing is increasing. It is now accepted as one of the most tax efficient way of setting up a Buy to Let Portfolio.
Can a Limited Liability Partnership (LLP) get a buy to let mortgage?
An LLP can apply for Buy to Let Mortgages. While using a LLP to purchase a Buy to Let Properties has recently appeared on the scene, it is gaining in popularity. Additionally the process for a LLP Buy to Let application is similar to a Limited Company purchase.
Why would a Buy To Let Landlord set up a Limited Company (SPV)
Section 24 of the Finance Act 2015
This act stops landlords from deducting mortgage interest and other costs from their rental income before calculating their tax liability.
Landlords will only be able to claim a 20% deduction on their finance costs. This replaces the system where higher rate (40%) and additional rate (45%) taxpayers were able to claim tax relief for mortgage interest payments on buy-to-let properties.
However, within a Limited Company the Mortgage cost can be deducted from the company’s profits. The restrictions do not apply to a Limited Company so they can claim Mortgage interest as an expense against their property profits.
The result
Undoubtedly, these restrictions have created a huge shift towards Landlords buying properties through Limited Companies. There has been a large trend of existing Portfolio Landlords transferring their Properties from Sole ownership to a Limietd Company. This is known as ‘Incorporation’.
However, tax savings are not the only reason to look at Buy to Let property with a Limited Company.
When deciding if a Limited Company is the best option, professional advice should be taken from a Chartered Tax Advisor (CTA).
What is an SPV?
A special purpose vehicle (SPV) is a company that is formed to undertake a specific business purpose. They are commonly used in certain finance applications, i.e. Development Finance.
Specialist lenders that offer mortgages to Limited Companies usually require the properties to be held within a SPV. This must be for the purpose of holding/trading in property only. Furthermore, some Lenders require the SPV to have certain Standard Industrial Codes.
How to set up a Buy to Let Limited Company (SPV)
Setting up a Buy to Let Limited Company is very simple and the same as setting up a normal company. The process generally takes 10 minutes if done through Companies House or you could go to your accountant.
Which ever route you choose it is important that you use on of the following SIC Codes for the SPV Limited Company
- 68320 Management of real estate on fee or contact basis
- 68100 Buying and selling of own real estate
- 68209 Other letting and operating of own or leased real estate
Does a Limited Company pay Stamp Duty on Buy to Lets?
Yes, they pay Stamp Duty just like any individual . There are no stamp duty savings if purchasing a Buy to Let through a Limited Company.
How to buy to let through a Limited Company?
Buying a property through a Limited Company is a bit more complicated than a normal Mortgage.
Firstly, you must understand that the company is the purchaser of the property and will be the owner. A typical process will be:
- Contact a competent Limited Company Buy to Let Broker.
- The broker will source the most suitable lender for your specific needs i.e. type of Property, amount of Loan, source of deposit etc.
- Place an application to the chosen lender in the name of the Limited Company.
- The Lender will request additional information regarding the Limited Company i.e. existing properties, rent collected, Bank Statements etc.
- The Lender will do a search on the Limited Company on to confirm details of Directors & Shareholders.
- Details of all of the Directors personal debts will be assessed, i.e. salaries, credit worthiness etc.
- Appoint a Solicitor to do the Conveyancing. This is as specialist area and Lenders will generally have a list of Solicitors whom they are happy to deal with.
- The Lender will appoint a surveyor to provide - Property Valuation & Rental Valuation.
- When all the above is completed and the Lender is satisfied, they will issue a Mortgage offer. A copy will go to your solicitors who will move the transaction to completion.
Even though the above looks relatively simple but is not easy and can get complicated. Having an experienced Buy to Let Mortgage Broker to hand will be essential.
How many Directors can a Buy to Let Limited Company have?
This varies from Lender to Lender:
- Some Lender will only accept Limited Companies with 2 Directors
- While we also have lenders that accept up to four Directors per application.
- Alternatively, other companies can also be considered as shareholders. The purpose of this being to allow money to move within the group. These companies can be holding or trading business. It is important they have the same Shareholder’s and Directors.
Floating Charges or Debentures
When offering a Buy to Let loan to a Limited Company some lenders will ask for a Floating Charge (also known as debenture) over the Co-directors assets. This protects the Lender against a loan default.
However, we have access to Lenders who won’t place any floating charges against any application. This is good news for clients and provides them with additional certainty and assurance when taking out a loan.
Shareholder deposits and directors’ loans
Once you have decided to purchase a property through your Buy to Let Limited Company, the company will need a deposit .This is generally provide to the company as Shareholder deposits or Director loans. Nevertheless, these are both considered to be acceptable sources of deposit.
Intercompany loans accepted
We have lenders that will accept Intercompany loans (subject to criteria). It should be noted, this could create more opportunity for clients wishing to grow their Portfolios and use money from one of their additional companies.
Important Tip- The Directors & Shareholders in the company providing the Loan (Donor) have to be the same as the company receiving the Loan (Recipient).
Using an existing company to Buy to Let
There are some Lenders that will lend to existing Trading Companies however they will want to see:
- SIC code 68209,68100 & 6830
- No evidence in the company accounts of any trade other than property
Even so, if the company has traded in another field in the past, some of the Lenders will still lend to the company. However, only if this is historic, the company has the right SIC code and the accountant can confirm the company will only be letting property going forwards.
Limited Company But To Let Planning is complex and requires specialist advise. You will need the services of a Tax advisor & Solicitors.
Whilst we’re unable to give tax advice, will be happy to work with your advisors to come up with a suitable solution for all of your Limited Company Buy to Let needs.
Start a conversation with us on 03300434317 for more information about our Limited Company Buy to Let services.
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