LLP Partner

Can I get a mortgage if I’m self-employed through an LLP?

A lot of people don’t realise that they will be treated as self-employed when they’re part of an LLP. A typical example is where you’re made a partner in a law firm or accountancy that’s set up as an LLP. These are often professional businesses such as those of lawyers, doctors, dentists.

If you own over 25% of the shares of an LLP you’ll be treated as self-employed – we will expand on that later. However, if you’re a partner of a big ‘Magic Circle’ law firm or major accountancy practice, you might have something like a 0.1% ownership of the business.

You’re paid annually based on profit and you’ll get drawings paid through. If you’re within your first year of this, or just been put in that setup, quite a lot of banks can’t help you.

If you own the whole business then it’s the usual sort of assessment – banks look more at the company performance: profit, your drawings etc. Obviously if you’re part of a magic circle law firm, we’re obviously going to get the company accounts, but we might need a letter from the Financial Director to clarify your income.

The key thing is that you often don’t know until you come to apply for a mortgage that your situation is more complex and banks can’t help you – even as a partner of a big firm. So don’t let yourself have that bad experience. Talk to us and we can navigate you through it. It’s very simple when you know how, but it’s a nightmare if you don’t.

How many years of trade does my LLP need before I can get a mortgage? What if I’ve only been a partner for a year?

If you have made partner with a nominal shareholding, you can get a mortgage from day one. A few banks will ask for a projection from your Financial Director on your likely income for the year.

Once you have a track record for more than a year, it’s fairly straightforward. What often happens is you’re paid drawings as gross income, and are then liable for your own tax. At the end of the year you submit your tax return to HMRC and pay the relevant tax – which is obviously far less than PAYE. We can get a document called your SA302 that states this income.

If you actually own the LLP or you’re a large shareholder in that business, the minimum trading period is one year. You need a year’s accounts behind you – and the majority of the high street banks want a two-year trading history. They often average your income which is important to note, particularly coming out of this Covid period. Ironically, a lot of professions did really well through this period so that may not be such an issue.

A few banks take three years of figures – they want to see you trading for three years plus, but only take the most recent two years into account for affordability.

Performance is relevant too. If, for example, your most recent year is lower than the average, a lot of banks will just take your most recent year rather than the average. If you had an exceptionally good year, that can then bring down your borrowing capacity. But some banks will just take your most recent year.

How much you want to borrow is key. If you only need to borrow a modest sum then this probably doesn’t matter, but if you’re aiming for a big loan, the bank you choose can make a big difference.

What income for my LLP ownership is considered in a mortgage application, and what documents do I need?

We’ve talked about the drawings which is the most common way. You can be PAYE through an LLP as well.

A lot of business owners draw out a basic salary to cover their living costs. Then you can choose whether or not to take extra money at the end of the year. If you draw extra money out, it will show on your SA302.

If you’re retaining the profits – which is obviously good practice, particularly through turbulent times – perversely some banks won’t take that into account. The net profit of the business is very relevant because some banks will look at retained profit. In law firms, as well, we get things like aged debt where you know what you’re going to earn for two to three years down the line. If you’re a barrister, your affairs are even more complex and there are banks that will take your aged debt into account as well. It’s a complex area in terms of assessing income.