If you are looking to invest in a buy-to-let property, you should always consider your options. How you acquire your investment can make a surprisingly big difference to your profits.
The 'Limited Company Lending' route is available for landlords who want to acquire new property by investing through a business or a Special Purpose Vehicle (SPV) rather than as an individual.
Transferring six or more of your properties into a limited company allows you to benefit from the relief from the 3% Additional Dwelling Supplement charge.
Many landlords looking to invest in a buy-to-let property first set themselves up as a limited company, which allows them to invest through this business rather than their name. By why?
This can be a wise decision for investors to make the property liable for corporation tax on money generated from rental earnings. This tax is lower than the income tax you'd pay as a typical landlord. This process is known as 'incorporating'.
Investing through a limited company would also allow you to avoid other costs associated with a buy-to-let property. These include capital gains tax (applicable for when a property is sold) and Additional Dwelling Supplement.
An SPV is a company set up with a particular investment in mind. As a limited company with restricted trading, you will be able to buy and manage your buy-to-let portfolio through the SPV.
After setting an SPV, the money you pay into the company acts as a deposit on the properties you buy, while a special buy-to-let mortgage will cover the rest.
Although appealing in many ways, it is always advisable to first seek professional advice about whether this is the correct route for you and your situation. There are mitigating factors, such as higher interest, that could end up costing you more money in the long run. Registering as a limited company will also not make you exempt from stamp duty (or equivalent), so be sure to do your research or give us a call for guidance.
If you choose to incorporate, you will not be eligible for a residential mortgage. You'll need a specialist buy-to-let mortgage that caters to limited companies.
In 2017, the rules surrounding buy-to-let tax relief changed. Individual landlords used to declare their mortgage interest costs as expenses against their rental earnings and then go on to pay tax at their personal tax rate. This tax relief has been gradually reduced by 25% over the last four years and has now completely expired.
In addition to this, a 20% tax credit has been introduced, which is against the proportion of the mortgage interest and is not tax-deductible. Landlords are now required to declare earnings from their rental income to HMRC, nudging many into a higher income tax bracket.
This has led to many more landlords incorporating, and so many more options for limited company mortgages have become available. Around a quarter of buy-to-let mortgages are limited company mortgages.
To find the best mortgage for your limited company, you may have to broaden your search from the big commercial lenders and dig a little deeper. These specialised buy-to-let mortgages are more nuanced and complex than the norm.
Unlike many other brokers, The Lending Channel has been working with specialised buy-to-let mortgages for many years. We don't just focus on the more straightforward commercial lending market, and we are here to offer our considerable expertise to aid you in choosing the right lender.
We endeavour to take all of your needs into account when advising you. We will consider several criteria:
We are always happy to advise you on the above. Give us a call today, and we can discuss your individual situation with no obligation.