For property investors and business owners, knowing your options is important. Limited company buy-to-let mortgages are an attractive option for investors who want to earn income from their properties while leveraging tax benefits. This article will explain buy-to-let mortgages for limited companies, the benefits, drawbacks, eligibility criteria and solutions available from Eden Hawk Financial Solutions.
What is a Limited Company Buy-to-Let Mortgage?
A limited company buy-to-let mortgage is for businesses that own residential rental properties. This type of mortgage is only available to LLCs, not individuals, so the company is the borrower. This can be a strategic advantage for property investors looking to grow their portfolio under a corporate umbrella.
The idea of buying property through a limited company isn’t new, but limited company mortgages have become more popular in recent years as investors look for tax efficiencies and better financial planning. Setting up a limited company for investment properties is now a viable option for investors who want to access benefits not available to private landlords.
What are the benefits?Tax Benefits
One of the main advantages of getting limited company buy-to-let mortgages is the tax advantages. Instead of paying income tax on earnings from your rental property like a private landlord, an LTD company pays corporation tax, which is often lower than the higher-interest-rate income tax thresholds. Profits retained in the company are not subject to personal income tax, so you can re-invest. Government changes to tax relief have made it more difficult for individual portfolio landlords to earn rental profits, making BTL mortgage options more attractive than ever.
Grow Your Portfolio Faster
When you sell a property through a limited company, the transaction isn’t a personal capital gain. It’s a corporate profit, so you can re-invest the proceeds without immediate personal tax liabilities. This structure can accelerate the growth of your property portfolio. There isn’t a specific limit to how many mortgages company directors can hold, and many lenders will allow you to have mortgages on four or more properties as long as you can make your monthly mortgage payments.
Limited Liability
Choosing limited company buy-to-let mortgages creates a legal separation between your personal finances and the business. This means your personal assets are usually protected from business liabilities, so you have peace of mind and financial security. However, personal guarantees are often required by lenders when securing a buy-to-let mortgage. Specialist mortgage lenders are more likely to allow you to take on more mortgages, provided you can make your monthly repayments.
What are the downsides?Costs of an LLC
Running an LLC incurs extra costs and admin. These include annual accounts, Companies House returns, corp. tax, and legal fees. Accountants will charge more for managing company accounts, which can add up annually.
Higher Rates
Buy-to-let property mortgages for limited companies have higher mortgage interest rates and fees than for individual landlords, which could lead to a higher mortgage payment. This is mainly due to the perceived risk of lending to a business, which will affect your overall returns and mortgage interest payments.
No Capital Gains Tax Allowance
Individuals selling buy-to-let properties have a capital gains tax allowance, limited companies don’t. When you sell a property through a limited company, you need to pay corporation tax on profits with no allowances which will affect your take-home profits after the sale. You may also need to pay stamp duty.
Who is eligible?
The eligibility criteria for a buy-to-let limited company mortgage is similar to an individual buy-to-let mortgage but with some differences:
- Deposit: Lenders require a minimum deposit of 20% to 25%. Some may require 30% or more depending on risk assessment.
- Rental Income: Lenders want proof that the rental income will cover at least 125% of the mortgage repayments, so it’s financially viable.
- Individual Income: Directors of the limited company may need to show other income and personal savings to cover any shortfall in rental income. Some specialist lenders have a minimum income threshold.
- Credit History: Both the company and director’s credit history will be checked, minor adverse history is sometimes accepted.
- Director’s Age: Some lenders may have age restrictions for directors, especially if they are near or beyond retirement age.
- Existing Property Ownership: If the company or directors own multiple properties, especially 4 or more, this can complicate mortgage options with high street lenders.
How can Eden Hawk Financial Solutions help?
Securing a buy-to-let mortgage for a limited company can be complicated, and a mortgage broker can offer invaluable advice and access to a portfolio of lenders. Eden Hawk Financial Solutions’ expert mortgage brokers provide expert guidance for property investors and small business owners. We offer:
- Personalised Advice: We assess whether a limited company mortgage fits your investment goals and financial situation, and help you compare limited company buy-to-let mortgage rates.
- Market Analysis: We review the buy-to-let market to find the best rates and lenders for your specific needs.
- Application Support: From gathering documents to liaising with lenders, we simplify the application process.
- Tax Efficiency Planning: Our financial experts can help you structure your investments to make them tax efficient, grow your portfolio, and limit what you need to pay tax on during your mortgage term.
Conclusion
Using a buy-to-let mortgage for a limited company is a significant decision, with many pros and cons to account for. While there are tax efficiency and portfolio growth benefits, the costs and admin need to be considered.
Contact Eden Hawk Financial Solutions today for help making the right choice for your property investment.