BTL Limited Company
BTL Limited Company
Every now and again the question is asked: Is it best to purchase in individual sole names or through a limited company? The answer: No mortgage broker can advise you on your tax affairs. This question can only be answered by your accountant or a tax specialist.
General guidelines
The LTD company must be a special purpose vehicle (SPV), a company specifically established to invest in property investment only, i.e., the company is not involved in any other non property investment activity. In fact, if it’s a newly created, off the shelf company with no trading history, even better.
For example: If you are a self employed IT consultant trading as a Limited Company for five years, and the name of your company is Computer Doctor Limited, the lender will not lend to Computer Doctor Limited because Computer Doctor Limited is an IT consultancy firm and not a property investment company.
You will have to set up a new LTD company to purchase the BTL property. It doesn’t matter that your new LTD Company is just one week old. In essence, the bank is looking behind the corporate veil and lending to you, the director(s). The only difference is that the loan and the property are in the name of a LTD company. Even though the loan is in the name of the limited company, all company directors will have to provide personal guarantees. As such, you are personally responsible for the mortgage.
The majority of BTL lenders shy away from lending to LTD companies; as a result, you will be faced with a restricted panel of lenders. You’ll have a much wider choice and better products if you purchase in sole individual names. This is why you have to speak to your accountant or tax specialist and they will be able advise you on whether benefits of buying in a LTD company name outweighs buying in sole individuals names. Some of you will get frustrated as to the lack of choice and high rates being offered by some of these niche lenders, but you need to remember the advice of your accountant as to why you’re going down the LTD route.
For example: Assuming purchase price of £200,000 and borrow £150,000 (75% LTV)
Name | BTL Product | Cost I/O | Total cost over benefit period |
Sole Name | 2 yr fixed rate at 3.34%, £1495 arrangement fee added to loan | £421.66 | £11,614 |
Ltd Company Name | 2 yr fixed rate at 5.24%, 2.5% arrangement fee added to loan | £671.38 | £19,863 |
The difference of buying in Ltd company to sole individual name = £8249.
If it’s purely a tax mitigation strategy, the upside is that you could be paying less tax on your rental income.
BTL LTD Company lenders
The main players in this niche area are:
- Paragon Mortgages
- Norwich & Peterborough Building Society
- Kent Reliance Building Society
- Newbury Building Society: only in certain postcodes
- Ahli United Bank: prime London postcodes only
- Niche lenders: Experienced brokers have access to niche lenders and underwriters that can review an application: Every application is considered on its individual merits and if it makes sense to the underwriter, they will do the deal.
- Private Bank: Some private banks will consider lending to limited companies SPVs, provided client is sufficiently high net worth and the properties are in prime London postcodes with a decent loan size: £5m +. Again, these deals are available via experienced brokers.
Documentation
- Passport and or Driving Licence to confirm ID
- Utility bill to confirm address (not more than three months old)
- Employed: last three months payslips and bank statements showing salary credit
- If self employed: last three years tax returns or business trading accounts
- Full assets and liability statement: If you have a large property portfolio, a spreadsheet of all your properties with the full address, open market value, name of mortgage lender, outstanding mortgage balance, monthly mortgage cost, and monthly rental income
Mortgageintellectual.com is not recommending that you invest in any specific property. You must conduct your own due diligence before investing in property. Property prices can rise and fall in value and past performance of the UK property market is no guarantee to future performance.
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