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Limited Company Buy To Let mortgages are becoming more common. Many are wondering why landlords are using Limited Companies to buy rental properties.

I’ve spoken before on the blog about the pros and cons of a Limited Company Buy To Let mortgage.

Several months on and I’m still being asked by customers whether they should consider Limited Company Buy To Let mortgages.

Precise Mortgages published an article recently which quotes research recently carried out by BVA BDRC.

According to the results, 44%1 of all landlords say they intend to use a Limited Company structure to purchase their next buy to let property. This figure goes up to 64% for landlords owning 20 or more properties.

It goes on to say that it’s now the most preferred purchase route for landlords looking to buy a new property.

The Limited Companies Buy To Let model

So why are so many landlords thinking of using a limited company model to run their buy to let portfolio?

  • The phased reduction of mortgage interest tax relief does not affect landlords with limited companies. This allows limited company landlords to offset all of their mortgage interest against profits from their rental income.
  • The current rates of tax (20% for basic rate, 40% higher rate and the 45% additional rate) are more expensive than the current Corporation Tax rate which currently stands at 19% and is due to reduce to 17% by 2020/2021 tax year. Profits through a Limited Company qualify for the Corporate Tax Rate.

Precise Mortgages go on to give an example of how they were recently able to help someone. They had a customer that wanted to transfer his buy to let properties into a limited company structure.

The benefit of Limited Company BTL mortgages.

They were able to offer that customer six new 5 year Fixed rate mortgages on LTVs of up to 75%. Not only that, they were also able to capital raise on the properties. This helped the customer to pay for small home improvements which increased the value of the properties. It also meant that the properties achieved a higher rental yield.

This is a great result for the customer. It’s worth pointing out that landlords thinking of transferring properties from individual named ownership to a Limited Company structure could incur considerable costs.

Tax implications for Limited Companies and BTLs

This is because the properties must be legally sold. This, in turn, means that the move will be seen as a sale and purchase. Therefore the transactions could incur Stamp Duty, Capital Gains Tax and Early Repayment Charges.

Whether customers are better buying through a Limited Company or sole name falls under tax advice. As a mortgage broker, I am not able to give tax advice.

Advice should always be sought from a suitably qualified tax advisor and legal advice taken before making any decisions.

Once a customer knows whether they wish to buy through their own name or through a Limited Company, that’s the stage that I can help.

Whether you are an established landlord looking to expand your portfolio and buy rental properties or you are considering buying your first Buy To Let property, feel free to give me a call to see how I can help with your mortgage needs.

Dan The Mortgage Man

07837 820 894

Source: 1 BVA BDRC Landlords Panel Q4 2018