Limited company buy to let mortgages – A few important things you need to know
A growing number of landlords are being urged to purchase new properties or remortgage their current portfolios onto limited company buy to let mortgages – is this really the best decision?
Following the changes to taxation on buy to let properties, landlords have been searching for new ways to increase their profits. Some have moved to a limited company structure because taxation through a company is lower than the tax charged to individuals. On the flip side, remortgaging each rental property will have a higher initial upfront cost because you may be charged arrangement fees and potentially early repayment charges to leave your current mortgage product. Plus, all business costs and profits each year will need to be filed and stored on Companies House for anyone to view.
Here are a few important things about limited company buy to let mortgages you need to consider:
Not all lenders who provide buy to let mortgages cater to limited companies. Due to there being fewer products available and the underwriting requirements differing from a standard buy to let mortgage, sourcing the best product can be more complex. Working with experienced Mortgage Brokers, like ourselves, who understand the products available and lenders’ requirements is crucial to ensuring you get the best deal and can raise the funds you need with minimal hold-ups throughout the application process.
Limited company buy to let mortgages are generally more expensive than buy to let mortgage products for individuals because lenders usually charge higher arrangement fees and rates. Over the past 12 months, since limited company buy to lets have grown in popularity, some lenders have started to even out their charging structures. A conveyancer may also charge higher fees due to the increased legal work involved and as an ongoing cost an Accountant may charge more for submitting Annual Returns and filing accounts for a limited company than they would for an individual.
You will need to decide whether you wish to run the limited company through a Special Purpose Vehicle (SPV) or Trading Business. An SPV is a non-trading company that is set-up purely for buying, selling and letting property. There are more limited company mortgages available for SPVs than trading businesses and generally, the application is faster as less information is required to underwrite each application. A trading business is a legal structure set up to run a business and so the application for a limited company buy to let mortgage can be slower and more complex as the trading companies’ profits and liabilities will need to be taken into account.
There is no one-size fits all approach to how to structure your investments and Ingard highly recommend you seek advice from a qualified Tax Adviser before purchasing investment properties through a limited company structure. As a general rule of thumb, the costs of operating a limited company structure may be best suited to landlords with more than one or two properties.