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How to Get a Limited Company Buy to Let Mortgage
The unique advantages and considerations of a limited company buy to let mortgage - here's what you might not know
Written by: Sam Hodgson
Whether you're buying your first investment property, or are an established private landlord, the tax benefits of mortgaging your property through a limited company can be significant, especially for higher rate taxpayers.
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A limited company or SPV buy to let mortgage is also a good option if you're looking to buy property as part of a collective, don't want to be named as an individual on the title deeds, and want to safeguard yourself from legal liability if things go wrong.
In this guide, we look at the pros and cons of getting a private limited company BTL mortgage to finance your rental property. How to set one up, what to do if you already have a number of properties that you want to transfer to limited company ownership, and how you can qualify for the best Ltd company mortgage rates on the market.
Key Takeaways
Related: 2024 Spring Budget - What it Means For SMEs
In This Guide:
What is a Limited Company Buy to Let Mortgage?
- How does a limited company buy to let mortgage differ from a standard mortgage?
- What are the lending criteria for a limited company buy to let mortgage?
Should I Purchase My Buy to Let Property Through a Limited Company?
How is Tax Treated When Buying Property Through a Limited Company?
How Do I Set Up a Limited Company or SPV?
How To Manage Your Limited Company or SPV
Transferring a Buy to Let Property into a Limited Company
Where Can I Get a Limited Company Mortgage?
How To Get a Limited Company Buy to let Mortgage
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What is a Limited Company Buy to Let Mortgage?
A limited company buy to let mortgage, also known as a Special Purpose Vehicle (SPV) mortgage, is a buy to let mortgage taken out in the name of a company. You can use it to purchase a property to hold in your company’s name.
The main benefits of getting a buy to let property in this way are tax related: you pay corporation tax rather than personal income tax on any rental earnings and profits, but there are other pros and cons of this approach too.
How Does a Limited Company Mortgage Differ From a Standard Mortgage?
If you're buying a property to live in yourself, then this approach is not for you (you'll need a standard residential mortgage).
But if you're buying a property to let out and yield rental income, then you could potentially save money by buying your rental property and securing your mortgage through a company set up solely for this purpose.
The mortgage you get is very similar to a standard buy to let mortgage, but because your company will technically own the property and the mortgage, your mortgage repayments and your rental earnings are treated differently for tax purposes.
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Are there any drawbacks?
You might need to pay slightly higher mortgage interest rates for this kind of specialist mortgage, and you may need a larger deposit compared to a standard buy to let mortgage if you're buying through your company.
You can set up a limited company easily online in a matter of minutes. You’ll just need to find a company name that hasn’t been taken already. You can set your company’s registered office as your own residential address to keep things simple.
2024 Buy to Let Market Update
- Prior to 2023, the stress rate was around 4%, and landlords could borrow significantly more. For instance, about a year ago, a basic rate taxpayer could borrow around £309k for a property based on the average UK rent of circa £1,300.
- At 75% Loan to Value, that could buy roughly a £400k property, which you would expect to comfortably provide £1,300 in rental income. So it made sense, and the maths added up.
- The BTL market faced challenges in 2023, with landlords finding it difficult to borrow due to stringent stress testing measures. However, stress testing has eased up in recent months, and there is growing confidence in the buy-to-let market in 2024.
Did You Know?
Generally, 5-year fixes are typically the cheapest deals available for buy-to-let mortgages. The Prudential Regulation Authority allows mortgage providers to apply a lower stress test if the mortgage term is over five years.
Because of this, you may find a rare 2-year fix or tracker mortgage that seems more suitable, but in most cases, a five-year fix will work out as a more affordable option, purely because of the more lenient stress testing criteria applicable.
What Do the Experts Say?
Alex Morris, Private Client Adviser
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What Are The Lending Criteria For a Limited Company Buy to Let Mortgage?
Many lenders will look at the following criteria when considering your application:
- A minimum property value of at least £50k is often required
- HMOs are usually accepted for limited company buy to lets
- Your property rent will need to cover around 125% of the mortgage interest
- You might face minimum income thresholds from some lenders
- Portfolio landlords are usually accepted for limited company buy to lets
- Minimum and maximum age terms can apply
- Up to 80% Loan to Value (LTV) for a limited company BTL
- Higher interest rates compared to a standard buy to let mortgage
- Variable and fixed rate products are available
Related: Do you have the right insurance policy for your BTL? See our property insurance guide and services here.
Should I Buy My Buy to Let Property Through a Limited Company?
There are some key advantages to getting a buy to let mortgage through a limited company:
- Tax - It can be more tax efficient than personal income, especially for higher rate or additional earners (More on the tax differences that can apply below).
- Limited Liability - Your personal assets won't be at risk if things go wrong (unless guarantees or other securities are given).
- Property ownership can be shared - If you're part of a collective, you can have multiple shareholders on the title deeds, making it easier to manage proportions of ownership and the share of profits
How is Tax Treated When Buying Property Through a Limited Company?
There are 4 types of tax to be taken into consideration:
- Income Tax
- Expenses (including mortgage interest)
- Capital Gains Tax (CGT)
- Future Inheritance Tax Planning (IHT)
Income Tax
Whether or not you can save on your income tax depends on your total income, other sources of income, and which tax bracket your earnings fall into.
You’ll only save money if you’re a higher-rate taxpayer, but remember to always check with a qualified tax specialist before making any tax-based financial decisions.
The calculations are complicated and depend on several factors, but we’ve summarised the basics to give you an idea of the most tax-efficient mortgage option for you.
If you own your property through a limited company, you pay corporation tax on any rental income rather than income tax. Corporation tax is a fixed 19% (for the current tax year at least), which could be lower than your income tax rate, especially if you are a high earner.
However, you still need to withdraw this money from your company for personal use. This incurs additional tax charges, which we will discuss later.
Example Scenario with a standard buy to let mortgage:
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- Your personal salary is £50k per year
- The rental income from your buy to let property is £8k per year
- You’ll be paying a whopping 40% of income tax on the majority of your rental revenue each year
But if rental income from your buy to let property is your only source of income, you're probably better off taking out a standard buy to let mortgage as the majority of your income will fall within your tax-free allowance of £12,570 (for the current tax year).
How to Withdraw Money From Your Limited Company
Whether this helps you save money on your final tax bill or not depends on how you then withdraw this money from your company. This can be done via:
- Salary
- Expenses
- Benefits
- Dividends
- Directors’ loans
Dividend payments are often more tax efficient than salary due to the preferential tax rates, particularly if you are a higher or additional rate income taxpayer. HMRC's information page provides some more detailed information on each option.
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Dividend Tax
For the current tax year, you have a tax-free dividend allowance of £1,000, and the remaining amount is taxed based on your relevant personal income tax band, as follows:
- Basic rate: 7.5%
- Higher rate: 32.5%
- Additional rate: 38.1%
Once you’ve paid your 19% corporation tax and dividend tax on your earnings, you may be better off than if you’d paid a flat 40% or 45% personal tax as a private landlord; however, we suggest speaking to a qualified tax specialist to confirm your figures.
You also need to factor in the potential higher rates of mortgage interest you’ll be paying, along with any accountant’s fees and administration fees you may need to cover.
Tax Relief on Mortgage Interest
Since 2017, HMRC has gradually been reducing the amount of the interest you pay on a standard buy to let mortgage that you can claim as a tax expense.
In previous years, it was lucrative for higher-rate taxpayers to offset their interest as a tax expense, as they’d avoid paying up to 45% tax on the value of their annual interest.
However, as of April 2020, the government has fully removed the ability to do this and now just allows for a blanket 20% tax credit in its place.
With a limited company buy to let mortgage, you can still claim this as an expense against your corporation tax at 19% so you won’t be losing out here by owning your property via your company. You won’t really be gaining an advantage, either, but you won't be losing out like you used to.
Stamp Duty
You still have to pay stamp duty on residential property purchases through a limited company.
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Inheritance Tax Planning
Transferring private property into a new owner’s name can be a time-consuming process and incur costly legal fees.
Transferring a limited company to someone else, however, can be cheaper and quicker. If you intend to gift your property to a family member in the future then this approach is worth considering.
As with standard IHT rules, if you die within 7 years of gifting your company or property it will be subject to Inheritance Tax.
Capital Gains Tax
- If you’re a higher rate tax payer you’ll pay 28% CGT on gains from a sale of residential property, including rental properties.
- You also have an annual CGT allowance that you don’t have to pay tax on, which for the current tax year is just £6,000.
- If you own your property through a limited company, then your gain from selling is classed as a profit for your business and is charged with corporation tax, currently at 19%, instead of the higher CGT rate.
While you don't get a tax-free allowance like you do with CGT, you could end up paying less tax on your sale by owning it through a company - particularly if you are a higher-rate tax payer and have already used your CGT allowance that year on other investments.
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How Do I Set Up a Limited Company or SPV?
Setting up an SPV is easier than you might expect. You can simply incorporate a limited company by going online via the Companies House website, here. You can do this in under 30 minutes, for as little as £12, but you need to be aware of the ongoing responsibilities of owning a company.
How To Manage Your Limited Company or SPV
Some of the primary responsibilities to keep in mind are as follows:
- Keep company records and report any changes
- File the Company Tax Return and accounts
- Ensure your Corporation Tax is paid
See the latest market news below.
Where Are the Most Affordable Places in the UK to Buy a Home?
With mortgage rates at a 15-year high, it's not the easiest time to buy property, for first time buyers and investors alike. Regulations have gotten stricter since 2022, and high mortgage rates have thinned profit margins, making owning a standard buy to let a trickier affair than a decade ago.
However, this isn't the case everywhere in the UK. The North of England has seen entirely different purchasing behaviour to the South since the early 2000s. In select areas, particularly Yorkshire, North Lincolnshire and Durham, you can still easily buy a property for under £100,000.
While house prices have dropped slightly due to lack of affordability across London and the rest of the South, this isn't the case in other regions.
Due to affordable housing and cheaper living costs in these areas, most of Northern England and Scotland have been resistant to the housing slump that the rest of the UK has experienced in response to high mortgage rates. The property market in these regions has remained robust and has seen growth throughout 2024.
There's certainly hope, both for property investors and those looking to get on the housing ladder. If you're looking to invest in a buy to let in 2024, it may be worth looking in affordable areas with a consistent rental demand, such as university towns or areas close to large employers. Property hotspots like these are still reaping generous rental yields, while the rest of the country is seeing slow growth.
How to Borrow More: Buy to Let Topslicing
One of the largest lenders on the market has announced they are including topslicing in their affordability calculations. Topslicing can play a crucial role in making buy to let investment more accessible because it allows you to supplement projected rental income with part of your employed earnings.
This can be advantageous for portfolio landlords and new property investors alike because it allows you to borrow more with a smaller deposit or include rental earnings from higher-yielding properties in your portfolio.
Without top slicing, it can be challenging to acquire a buy to let mortgage with a small deposit. Rental yields alone are typically not enough to secure a large mortgage at 80% LTV or higher.
With this lender, topslicing is only available to those with a household income of £100k or more (e.g. singular income of £100k, or two £50k incomes or equivalent), but it certainly opens a few more doors for high earners who are looking to invest in rental property but are struggling with affordability.
Transferring Buy To Let Property Into a Limited Company
With the changes in tax rules for private landlords - the loss of mortgage tax and wear and tear relief, an increasing number of buy to let owners are seeking to transfer their properties into limited company ownership.
Buy to let properties owned by private companies or SPVs are seen as businesses, so expenses such as mortgage interest and maintenance can be written off for tax purposes.
It's important to run this past a specialist mortgage broker and take advice from an accountant. The long term benefits could be significant, but in the process of selling and repurchasing any property you want to transfer into company ownership, you will likely incur the following costs:
- capital gains tax
- stamp duty charges
- legal fees
- Valuation and mortgage fees
In some cases, if you can prove that you are a full time landlord and own enough property to meet certain criteria, it is possible to avoid some of the costs of moving buy to let property into a limited company.
We advise you to seek the advice of a tax specialist before making any decision about using a limited company to manage your property portfolio.
How Can I Get a Limited Company Mortgage?
Standard mortgage lenders will not offer loans to limited companies, and you may need to rigorously scour the market to find the best options out there for you.
However, a specialist Mortgage Broker can provide qualified mortgage advice, and will have access to lenders you won't be able to approach yourself.
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How to Get a Limited Company Buy to Let Mortgage
At Clifton Private Finance, we have established relationships with high street, private and specialist mortgage lenders that can offer bespoke mortgage solutions. Using our knowledge and expertise, we can help you get the best limited company buy to let mortgage rates available on the market today.
We can also advise you on what kind of mortgage is right for you and walk you through the steps to preparing for your property purchase.
All our advisers are fully qualified, and our advice is authorised and regulated by the Financial Conduct Authority, so you know you’re getting help you can trust.
To see what we can do for you, call us on 0117 205 4829 or book a free consultation below.
