A report by Landlord Today on the 6th of November 2019 revealed that an increasing number of investors in buy to let property have purchased via a limited liability company. Nearly two-thirds of landlords are now choosing to invest through limited companies – and not only those landlords with large portfolios of such property, but landlords with smaller portfolios, too.
Limited company buy to let mortgage
The upsurge in purchases by limited liability companies is fuelled by the availability of limited company buy to let mortgages.
So, what is a limited company buy to let mortgage? And what are the advantages of making your investment via a limited liability company?
Just as the term suggests, a limited company buy to let mortgage is a mortgage advanced to a limited liability company to purchase a buy to let property, which is used as security for the mortgage loan.
By no means are all mortgage lenders interested in arranging limited company buy to let mortgages. Those that do may also show preference to limited liability companies that have been incorporated specifically to purchase and to hold buy to let property. Such limited liability companies are known as special purpose vehicles (SPVs).
The benefits of incorporation
The principal attraction of investing in property through a limited liability company is the reduced tax liability – especially if you are a higher or additional rate taxpayer.
As a limited liability company, you pay the standard rate of corporation tax on your holdings of buy to let property. That current rate is currently 19%. As a private individual, on the other hand, you would pay a minimum 20% on your earnings as a landlord (at the standard rate of taxation on incomes up to £50,000 a year), 40% incomes between £50,000 and £150,000, or 45% if you earn more than £150,000.
The steady removal of income tax relief on mortgage interest repayments – the tax year 2020 is the first year in which landlords are entitled to no relief at all – has increased the appeal of incorporation to many higher-earning landlords. The demand for limited company buy to let mortgages has therefore increased, and this specialist sector of the market has become steadily more competitive.
The cost of incorporation
Incorporation – and a limited company buy to let mortgage – may not be for every landlord. The potential savings on the tax you pay need to be offset against the various costs involved in setting up your company:
- when you transfer ownership of any existing let property from private into corporate ownership, you are likely to need to rearrange and remortgage the property accordingly – by arranging a specialist limited company buy to let mortgage – and this will involve some costs;
- there are also legal costs involved in setting up and registering your company – together with filing the annual return to Companies House;
- you need to maintain a registered office address – which may be your own home or the address of your accountants;
- accountants’ fees also need to be paid each year for the required audit of both your company and the incomes of its directors and shareholders; and
- you may need to pay any fees and expenses involved in transferring from your personal to a business account at your bank.
Incorporation, therefore, may not be suitable for every landlord. But where a company has been set up, by seeking the appropriate financial advice, you may be sure to find a limited company buy to let mortgage.