Limited Company Buy to Let Mortgage

Hello and joining us on this episode of the Mortgage Protection Podcast is Scott from Propertyze to explain how getting a buy-to-let mortgage through a limited company works. It's great to chat with you Scott. How's it all going? Very well, thank you. Very well, yeah. Good. I'm glad to hear that. Well, let's see what questions we've got here for this episode then and of course we'll start here. So, can I get a buy-to-let mortgage via a limited company and is it difficult to do this? So, yes, you absolutely can get a buy-to-let mortgage through a limited company. It's quite common these days. Most people actually do them through limited companies, which are often referred to as an SPV, which is a special purpose vehicle.

All that really means is that it's a company set up specifically to hold property. But it's not necessarily more difficult in terms of the process. It changes the lender choice. We'll use different banks because some like limited companies, some don't. So, the high-street ones don't tend to, for example. But that doesn't really change it from the client's perspective. It just changes what we do outside. Right. OK. So, that explains that there in a nutshell then. So, let's follow on with the next two questions. How do limited company buy-to-let mortgages work and what's the eligibility criteria here? So, the eligibility is very similar to your personal. You would try and buy one on a personal name.

Differences can be things like proof of income, which isn't necessarily required for a limited company, but there's a limited company is thought of as its own legal entity. I mean, it is. But from the bank's point of view, they think of it as a person. A limited company is a person. That's how they kind of view it. Right. And it doesn't have income until you bought a property. So, they don't need income requirements, whereas in your personal name, a lot of lenders might acquire 25K basic income from something else other than property. That point is largely mitigated with most lenders. Otherwise, clean credit, a business plan, you plan to deal with it. But those are things you would do either limited company or personal anyway.

Changes can be things like rental income calculations. So, rental stress testing can sometimes be better in a limited company. If you are a high rate taxpayer or additional rate taxpayer, calculations for you in a personal name are quite hard in a limited company because the limited company only pays corporation tax, which is between 20 and 25% depending on turnover. The rental calculations can be a lot more favorable. So, you can borrow more money in the limited company. Right. Okay. Well, there we go. Thank you for explaining all of that there. Hopefully, that's clear. Some points to bear in mind. Of course, we've got this question. It's always a popular one, but in this case, just following on from that,

how much deposit do I need for a buy-to-let through a limited company to confirm there? So, the standard 25% is going to be your blanket answer. There are a few lenders that will go to 80%. They're relatively expensive on rate and on arrangement fees, but it can be done if you're really struggling with your deposit amount. And as always, the more deposit you put in, the cheaper the rate's likely to be. So, we tend to see break points at 75% amounts of value, 65% amounts of value and 50% amounts of value. So, if you can increase from 25% to 35% deposit, your rate's likely to come down. If you can increase to 50% deposit, your rate's going to come down significantly. But as a minimum, 25%. Hmm. Okay. So, that answers that there. That's clear.

Let's move on to this question. So, in your opinion, Scott, is it worth setting up a limited company for buy-to-let? In almost all instances, yes. That said, speak to an accountant for your own personal circumstances because there will be lots of caveats to that. If you're in a position to be buying property, then most likely a limited company is going to be the best option for you going forward for tax reasons, in a personal kind of position. The tax position will be different. The limited company has benefits that a personal ownership wouldn't as well. So, in the limited company, you could offset mortgage interest against your profits. You have a personal name, you can't. So, if you make, say, you make £10,000 a year in rental income,

you're just making the numbers up. In a personal name, HMRC will look at that and say, you make £10,000, we're going to tax you on that at your marginal rate. That might be 25%, 45%. You pay that on the 10,000, even though you've made mortgage payments. So, they'll take that £10,000 and say it's 25%. They'll take £2,500 off that, that's the tax you pay, leaving you 7.5. But you've got to make mortgage payments from that 7.5 left. Your profit's quite small. In a limited company, it works in reverse. So, £10,000, you pay your mortgage payments first, let's say it's £4,000, leaving you £6,000 profit, then you pay 25% on the 6,000, so it's £1,500. So, in that very crude example, there's a £1,000 difference in tax.

So, there's pros and cons, but most people end up using limited companies from the tax perspective. OK, so that just paints a picture there. Thank you for breaking down all the figures as examples, so hopefully that's useful. Let's again follow on with this next question. So, do limited companies pay stamp duty on Bitalette and what other costs are involved as well? So, yes, they do pay stamp duty and they pay it, including the through-pardon 3% additional property surcharge. So, if you were to buy in your purse name and you didn't own any property at all, you might qualify for your first-house buyers allowance. But in a company, you can't use that. Even if you don't own a property in your personal name,

if you're buying a company, as I kind of mentioned earlier, a company is seen as its own legal entity. It doesn't qualify for a personal allowance. So, it will pay the full additional property surcharge on any purchase. Regarding other costs, incorporation fees. So, setting up with the company is going to cost you £15 something. That's the easy part, but accountancy fees. You will need to file accounts every year with HMRC, so you're going to want an accountant, most likely that's going to cost you a few hundred pounds. Mortgage rates tend to be pretty much the same now for personal limited company. The difference is some lenders have a percentage arrangement fee and personal lend tend to have fixed fees.

That's changed a little bit in the last couple of years with the interest rates going up because of inflation. So, a lot of lenders have been very creative with their products. But as a general rule, you might find slightly higher fees for a limited company. Right, okay. So, something to bear in mind there, but it's always useful to know the costs in advance to budget. Now, with this next question, you've touched on a lot of the points already, I believe. There might be some crossover here, but what are the benefits and drawbacks of owning property through a buy-to-let limited company? Benefits and risks probably is a better phrase. Yeah. So, obviously the primary one is tax efficiency is a benefit

because you don't have to draw the income out. You can leave the company with its profits and it pays corporation tax versus you paying 45% tax or 40% tax on your personal. So, big difference is there. Limited personal liability. Now, if you take out a mortgage in your personal name, you're liable for it. If you take it out in a limited company, the clue's kind of in the name of that one, limited. Companies have limited liability. You're not, the company's responsible for the debt, even though the banks will underwrite you as a person. So, there's a limited, if the property goes under you've stopped making mortgage payments and they repossess it, they repossess it from the company. It doesn't impact your personal credit from directly

because the company owns the debt. That's not to say that there won't be implications for that. You will have to declare that on future applications and stuff. But from a limited point of view, limited liability. Some people like that. It makes them feel a bit more comfortable. It can be easier to manage a growing portfolio. So, if you have multiple properties, some of the bigger lenders will do aggregated loans across the whole portfolio, making it very cost effective to do valuations, legal, refinances, that sort of thing. Great for limited companies. Drawbacks, there are slightly fewer mortgage lenders. I say a lot of the high street lenders won't do limited companies. And ongoing costs. So, you will need to have an accountant,

run your accounts every year. If you have a full-time job and you're drawing income, you need to, your accountant will probably have to do your personal tax returns because you might be drawing dividends as well as income from the company. So, a few other things to think about. Bit more management perhaps, but largely I see this very heavy weighted in the benefits kind of category. Right, okay. Well, that's good news. That's positive there, but it is all about weighing up those pros and cons as well, isn't it? Now, we've got three questions left. So, of course, people would like to know, how do I get a buy-to-let mortgage through my limited company? So, what is the process if someone is looking to do this

for the first time? So, the first thing you need to do is set up an SPV company. SPV company just being a generic name as a company, but with the correct SIC codes. Now, SIC codes are what we call, well, it's the short term for Standard Industrial Classification. So, a fancy name for basically just a code that tells everybody else what that company does. So, in the case of property, the codes start with 68, so 68100 or 68209. There's four or five of them, I think. Your accountant will set that free, or you can do it yourself. So, set it up with the right SIC codes. That means the banks can lend to it. That's the first thing. Next thing is speak to a broker who can help you find a solution for your property acquisition,

help you structure the limited company and work with your business plan as well. So, working through the business plan and then it's the same. Same as a normal mortgage process. We do a decision of principle. We go to flat application, get a valuation done, go to legals, hopefully get a completion within six to eight weeks. Right, okay. Well, a brilliant mini step-by-step guide there. So, yes, hopefully that's useful. We've got two questions left here now. So, how does re-mortgaging a Bightlet property work through a limited company? Any differences here? So, I'm gonna presume that you've already purchased it through a limited company and now you're coming up through your mortgage. So, very similar to the process you've already done

on your purchase. We come to a broker, we look at the property, the rental income. We research the lender for you based on cost and other factors because you might be looking to capital raise, you might be very cost sensitive. You might want a lender that's gonna work with you long-term if you're growing a larger portfolio. So, perhaps a larger bank that's gonna take more of a holistic view of your portfolio. But we'll do that for you as well. And then the process is the same. Submit a decision of principle, submit the full mortgage application, valuation and legals, and through the completion, so. Right, okay, so that explains that. Now, just lastly, you've demonstrated this throughout the episode,

but how can a broker help here? Have you got anything else you'd like to add? Just that really brokers are vital when it comes to these more complex transactions because the lenders you'll be using will almost always be broker only. You won't really go direct to most of these lenders. So you're gonna have to find a broker whether you like one or not, if you're going down the company route. But we add a lot of value by, as I said, helping you with business plans, helping you structure the portfolio going forward for growth, for equity release, making sure you have the lender based on your kind of five year and 10 year goals as well. So, lots of things to cover off there. And managing the application, valuation and the legals.

Just in itself, can save a lot of headache. Okay, well, there we go. Again, Scott, thank you for breaking all of that down and explaining that. Hopefully that has proved useful to anyone listening to this and I'm sure we'll catch you on another episode soon. Perfect, thank you very much. Please note, your property may be repossessed if you do not keep up with your mortgage repayments. The Financial Conduct Authority does not regulate most buy-to-let mortgages. For specialist tax advice, please refer to an accountant or tax specialist.