Published 28 July 2015 · Last reviewed 28 March 2017 · Older article — see current rates
Key points on Buy to let Mortgage Limited Companies and how the finance side of things work
Following the budget landlords have been turning to limited company wrappers for their portfolios but is there only an upside?
Moving assets out of an individual name into a company sounds straight forward but become tricky if the subject matter is a mortgaged property. The buy-to-let lender options operate in a completely different way to the vanilla buy-to-let providers. How so? Well they the underwriting process is paper intensive, and a large onus is placed on the level of buy-to-let experience and assets you have. Also the interest rates and set-up charges are generally higher.
Flipping an existing property into a limited company name will have a capital gain liability so you will need to do your sums with your Accountant. New acquisitions will not have the same implication but if you want to secure the property quickly the vanilla buy-to-let providers will be a much safer bet, and may be remortgage into a limited company at a later stage when the transaction is no longer time sensitive.
The loan-to-values of limited company mortgages can be as high as 75% which is parable to the vanilla lenders, who although in theory can stretch to 85%, rarely do and transact most of their business at 75% or below due to the rental calculation and better rates.
As a general rule the lenders prefer the limited companies to be set as up as special purpose vehicles with the sole remit to purchase and hold properties. Occasionally the lender will specify they can be the only mortgage provider which is restrictive and can add another layer of cost if you hold assets with other lenders as a separate company will need to be formed. Some landlords choose to set up a company for the management of the properties and again it’s worth exploring with your Accountant.
Buy to let Mortgage Limited Companies
For those of you that do not want to go through the rigmarole of forming a company there are other ways to mitigate tax which are popular:
- Holding the asset in part or whole in the lower tax earners name. For example, Client A owns a buy-to-let in his sole name. Client A is in the higher tax bracket and his wife Client B is in the lower band. If they hold the asset jointly or in her name only the tax liability reduces. To transfer the property on this basis it is a straight-forward remortgage.
- Adding on non-tax payers. For example, if a buy to let is purchased in parents’ names along with their two student children then the income tax liability is spread along similar lines as above. Interesting this method also lends itself well to reducing the capital gains liability too as there are 4 CGT allowances that can be used when you look to sale or move in a limited company later on in life. We have a number of lenders that will allow up to 4 applicants.
If you are looking for buy to let finance in your individual names or on a limited company basis why not give us a try as we deal with these type of enquiries on a daily bases.