Buy to Let Limited Company

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Buy to Let Limited Company

Buy to Let Limited Company

Buy to Let for limited companies with Richard Campo.

Podcast was accurate at point of publication and is subject to change (June 2023)

What is a Buy to Let for limited companies and how does it work?

Fundamentally, this is a Buy to Let mortgage – and if you want to get into the nuts and bolts of how Buy to Let works, we’ve got a good podcast [add link] that’s definitely worth a listen.

This is zeroing in on a very specific part of the market, when you want to get an investment property but buy it through a company. Typically that’s done by way of an SPV – a special purpose vehicle. It’s an off-the-shelf, vanilla company through which you can own property – but do talk to a tax expert on this.

I’ll be saying the same thing over and over today – get tax advice. We can’t give you advice on tax because it changes all the time.

And generally, some of the things I say today may not be true in the future. I’m going to focus on lending and the technical aspects. A single purpose vehicle is usually good for high net worth individuals because the tax treatment is more favourable. But that might change in the future. [podcast recorded June 2023]

Should I put my Buy to Let into a limited company? Is it better to own property through a company?

Whether it’s better or not is down to your tax situation. The thing to note is that if you’re purchasing a brand new property and you put it through a company, that’s quite easy because you do it all at the same time.

If you own a property currently and you want to put it into a limited company, that’s more tricky – it would trigger stamp duty, interest charges and other things like that. There are complicated rules around it.

Again, that’s where you get tax advice – even if it does save you more money in the long term on tax, the cost of doing it might outweigh the benefit. Some firms say they can mitigate stamp duty but I’m not going to get into that. Find a really good property lawyer. We’ve got great contacts and we’ll happily share them with you.

If you’re entertaining this idea, talk to an accountant first then come back to us. We can arrange the finance but we can’t do the tax bill.

Can I transfer my Buy to Let property to a limited company?

Yes, but as per the previous question it’s great if you’re buying one fresh. If you are refinancing or transferring it, it’s tricky, so do get advice.

Can you claim mortgage interest on rental property in a limited company?

At the time of recording, yes, you can. Again, talk to your accountant because tax rules change all the time. This may not be true in the future – although I suspect it will be.

As it is now, you can’t offset mortgage interest on Buy to Let in your personal name which is pretty outrageous. If the government does go down the path of stopping companies recouping interest costs, that opens a whole Pandora’s box for other trading companies. So I think we’re fairly safe in that area, although the government is quite unpredictable when it comes to tax.

How much deposit do I need for a Buy to Let through a limited company?

As a rule of thumb, 25%. Some banks will go down to 15% deposits but that does fluctuate in time. When the market’s tougher, banks want bigger deposits, when it’s easier, banks will have smaller deposits.

The tricky thing around Buy to Let right now in June 2023, is that in under a year the base rate has gone from just above 1% to 5%, and that has had a big knock on effect on how mortgages are granted.

Banks do a calculation called the Interest Cover Ratio (ICR), where the interest rate on the mortgage informs how much the bank will lend you. As interest rates go higher, the banks offer you less.

That’s where the deposit comes in. You might have a 15% deposit but due to the interest rate you’re charged and the rental income, you may not get the borrowing you need. Certainly in central London it’s currently tough to borrow more than 50% of your property value.

You can use your personal income to bolster it, but even with a 25% deposit it’s not a given. Other calculations come into play that will have a far bigger impact.

Are Buy to Let mortgages for limited companies more expensive?

They can be. As a rule there is a premium to pay for a limited company Buy to Let, but more and more banks are coming into this space.

Where someone owns a property in their name and lives there, those mortgages default less because people will stop paying everything before the mortgage. With rental property, there are more defaults – it’s not your property, it’s an investment and some of those do go wrong.

Then, with a rental property through a limited company, you’re even further removed so defaults are higher again. So that’s why banks price them a bit more expensively.

But as more banks come into this space, pricing is coming down – it’s less niche now. It’s becoming more mainstream, particularly for high net worth clients because of the tax treatment.

I always explain this to clients by looking at how many pounds everything will cost you by the end of the year. The interest charged, the amount you can deduct, the tax you pay… Invariably it does work out cheaper to come through a limited company right now.

Do limited companies pay stamp duty on Buy to Lets?

Yes, and there are stamp duty calculators online to give you details. Again, your accountant can answer that question, and stamp duty rules do change in time. There will be some tax to pay – sometimes less, sometimes more. But it’s best to check out what the current situation is.

Can I get a limited company Buy to Let if I’m a First Time Buyer?

You can, but it’s harder if you don’t own any other property. The main qualifying rules for a Buy to Let are the deposit and being a homeowner. That’s a big tick in the box.

Particularly for limited company Buy to Let, you often need to be a landlord too. There are quite a few boxes to tick before you can get a mortgage.

There are a few providers that will do it but it’s more niche, and it’s harder. But if you’ve got a really good income and you could afford this mortgage on your own, we could find you a lender. If you can’t, it will be tougher.

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What if I have bad credit?

The usual rules apply. It depends how much the debt was and when. If it was a default or CCJ, what’s the monetary value, and how long ago was it? If it’s very recent, that’s more problematic. Anything that happened more than six years ago does not show on your credit file. It’s a bit like your driving licence – sometimes you get some points and they fall off over time.

For example, if you had a big CCJ last month, it’s going to be really tough. If you had a small default five years ago it’s probably fine. The more recent and the bigger the event, the higher the banks will put the interest rates.

With Buy to Let, banks are tighter in this area for the reasons I’ve really mentioned about defaults. But as long as you’re a good borrower and we can explain the situation, we could find a lender for you.

How do I set up a limited company or get a Special Purpose Vehicle (SPV) for a Buy to Let mortgage?

Guess what I’m going to say…talk to an accountant. There’s something specific with SPVs in the investment space called a SIC code, and banks will only lend to companies with certain SIC codes around letting, buying, selling and maintaining property.

Banks don’t like it if you’ve got development permissions or other trading permissions. For example, if Rose Capital bought a property, a bank wouldn’t be happy with that. But if I set up Rose Capital Property Partners and bought property through that, it’s absolutely fine. Having that separate entity makes it easier for the bank.

It’s very important to set that up correctly and be really clear about the permissions of the company. If you do want development finance that’s fine, but it’s not for this space. That’s a different set of lenders. We just need to make sure we put you with the right bank for the right purpose.

What are the advantages and disadvantages of a limited company Buy to Let ?

Right now, it’s more tax efficient – but that might change in time, so speak to your accountant. There are also long-term benefits, for example, where clients are thinking intergenerationally. If you have children and think the property would be a great asset for them, transferring shares is a lot easier than buying and selling property.

That’s really worth thinking about. It falls into inheritance tax planning as well. If you have long term plans and you want to build a big portfolio, it’s really beneficial to follow this route – there’s more flexibility in the long term.

On the downside, there are fewer lenders. Pricing is a little bit more expensive and the criteria is a little bit more complicated. The First Time Buyer angle is a good example of how there are certain things you can and can’t do – it’s a touch more restrictive.

But as long as you’re a good borrower, you’ve got some experience and have a good income and deposit, generally we can find the right lender for you. But you will find this tough if you don’t have much experience, income or deposit.

The brutal truth about property is it’s a very cash-heavy investment. But if you can tick those boxes, you should be fine.

What else do we need to consider with limited company Buy to Let?

Do talk to your accountant first. Then, when we come to arrange the finance we know what we’re working with. In this space there are banks that don’t deal with the public and other banks who give us exclusive products and preferential treatment.

So talk to a broker, because we will find a better lender, and secondly we will give you advice around the structure of the loan. We’ll talk to you about whether to choose interest only or repayment, a fixed rate or variable.

As we’re talking today in June 23, the money markets are all over the place. So brokers are well worth it for that product aspect alone – even before you get into all the complicated stuff I’ve very touched on briefly.

There’s more to think about – so for any questions just get in contact and we’ll be really happy to talk you through this in more detail.

Content was accurate at point of publication and is subject to change (June 2023)
Your property may be repossessed if you do not keep up with your mortgage repayments.

The Financial Conduct Authority does not regulate most Buy to Let Mortgages.