Key Facts You Need to Know About Limited Company Buy to Let Mortgages

Investing in a buy to let property can be a future-proof way to secure regular earnings and own a tangible asset that’s very likely to grow in value.

Buying as an incorporated company is common since there are many tax advantages and allowances that you can’t take advantage of as a private individual.

Still, it helps to be fully informed about all the key factors to ensure you’re going into any buy to let mortgage or investment with your eyes wide open!

In this guide, our mortgage brokers summarise some of the essential criteria we share with limited company landlords before they make their next move. For tailored advice from the buy to let experts, please get in touch.

Buy to Let Company Mortgages: The Facts

Here’s a quick summary of the things you must know before you sign up for any buy to let mortgage through a registered business

  • Mortgage rates: you’ll find fewer lenders offering commercial buy to let mortgage, and the interest rates are often a bit higher – give Revolution a call for an independent view of the best rates currently available!
  • Stamp Duty: this is payable on any purchase, including a property bought by a limited company. You’ll need to budget from 2% of the property price for investments over £125,000, plus additional levies if you already own other residential homes.
  • Tax relief: a tax adviser can save you a lot of legwork and costs. As a business, make sure you keep detailed records of all expenses, including mortgage interest paid, as this is entirely tax-deductible.
  • Corporation tax: you need to file a corporation tax return every year and usually pay 19% of your net profit in tax. This rate is extremely attractive, especially for higher rate taxpayers who might owe 45% of their rental products as private individuals.
  • Capital Gains Tax: Capital Gains Tax is payable if you sell a property and make a gain on the value. The rate varies from 18% to 28%, depending on your marginal tax rate.
  • Property transfers: if you own an existing buy to let property and transfer it to a business, this constitutes a transfer, and you’ll need to pay Stamp Duty and Capital Gains Tax.

If you have any queries about these highlights, we’d recommend seeking professional advice or working with an accomplished broker to collate a full breakdown of the costs involved.

Eligibility for a Limited Company Buy to Let Mortgage

One of the questions we often receive from prospective landlords is about eligibility and whether they’d be able to apply successfully for a buy to let mortgage if they incorporate a limited company.

We can, of course, provide more detailed guidance to help you with the process, but most lenders will look for:

  • A company set up with Companies House, with the purpose of buying, renting and selling properties. This type of company is called a Special Purpose Vehicle, or SPV.
  • Registration details that match the Companies House register in England, Wales or Scotland.
  • A maximum of two directors or shareholders, with 100% of the shares owned between them.

Please note that commercial mortgages are a broad area, and it’s never wise to assume every qualification requirement is set in stone since this varies considerably between lenders.

If you’re interested in a limited company buy to let mortgage, please get in touch at your convenience, and we’ll run through the range of borrowing products we think might best suit your requirements.

Extracting Profits From a Limited Company Rental Property

Finally, let’s have a brief look at profit extraction and how you can pay yourself a reasonable income from the proceeds of your limited company investment property.

There are lots of ways to receive income from a limited company, such as:

  • A regular salary
  • Dividends
  • Pension contributions

A tax adviser will offer specific guidance, but generally, it’s best to opt for a combination of payment types to avoid paying a higher tax than necessary.

For example, dividends have a tax-free allowance of £2,000. If, say, you make a net profit of £10,000 and share this between two directors, the exact tax obligation depends on your income tax rate.

  • Director A is a basic rate taxpayer. They claim a £2,000 allowance and pay 7.5% on the £8,000 balance, receiving a net income of £9,400.
  • Director B is in a higher rate bracket and pays 32.5% dividend tax after the allowance, resulting in a lower net income of £7,400.

As we can see, the profitability of your limited company property investments depends on how you pay yourself. Usually, a combination of a salary and dividend is the most efficient option.

Other factors such as finding a mortgage with competitive rates, flexible terms and low set-up costs can also make a dramatic difference to your overall income and the profitability of your investment.

Please get in touch with Revolution on 0330 304 3040 or drop us an email at info@revolutionbrokers.co.uk to discuss any of the information in this guide or to run through the best options for your limited company buy to let mortgage.

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