Having increased in popularity over the last five years, limited company buy to let mortgages are more common than ever. However, there are still many myths around this property investment structure that need debunking.
Investing in buy to let via a Limited Company can offer landlords plenty of benefits, making them an increasingly popular investment structure. However, there are several common misconceptions surrounding Limited Company buy to let mortgages that could be holding you back from investing in this way.
Below, we examine the top six misconceptions we hear about Limited Companies and provide some clarity to help you make better-informed property investment decisions.
1. SPVs are different to Limited Companies
There are often misunderstandings about what an ‘SPV’ is and how it differs from a Limited Company. For clarity, they are the same thing. In mortgage terms, an SPV Limited Company is a company set up solely to buy and let out property.
When setting up your Limited Company on Companies House, you will select the relevant SIC (Standard Industrial Classification) code, which classifies the Company’s industry and is used for tax purposes.
The SIC codes used to classify a Limited Company that deals with property are usually 68209 or 68100.
2. A Limited Company needs a few years of accounts to get a buy to let mortgage
Not at all. You can set up an SPV Limited Company today and start borrowing through it tomorrow. Most lenders who offer buy to let mortgages for Limited Companies will take unsupported personal guarantees from the Company’s directors (and shareholders). As such, your mortgage application is assessed in a similar way to individual buy to let mortgage applications.
For more information about the income requirements for Limited Company buy to let mortgages, read our blog here.
3. Limited Company buy to let mortgages are more expensive
As Limited Company mortgages have increased in popularity over the years, more lenders now offer Limited Company product ranges. As such, pricing has become more competitive, and in some cases, lenders offer the same rates to individual and Limited Company applicants.
However, whether it’s more cost-effective to invest via a Limited Company or your own name will depend on your tax position. Please seek professional tax advice before making any property investment decisions.
While we can’t give you tax advice, we can compare the rate and overall mortgage costs of both personal and Limited Company mortgage options available to you to help you and your tax advisor make a better-informed decision on the best route for you.
4. The stamp duty surcharge does not apply to my Limited Company’s first buy to let purchase
Unfortunately, no. If you purchase property through a corporate structure, such as an SPV Limited Company, the 3% surcharge applies, irrespective of your personal position. You can use our stamp duty calculator here to check how much you’d pay.
5. I have bad credit, but if I borrow through a Limited Company it won’t matter
As mentioned above, lenders will underwrite Limited Company mortgage applications based on the borrowers behind the company, as they’re who’s offering the personal guarantee. Therefore, your credit history will be searched, and depending on what they find, it could cause an issue.
6. I can transfer my personally owned buy to let property into my Limited Company
The term ‘transfer’ in this situation is misleading.
To move a personally owned property into your Limited Company is treated as a sale and purchase transaction. This is typically referred to as ‘incorporation’, meaning that the process is the same as if you were purchasing a new property. Your Limited Company will have to purchase the property at market value, pay stamp duty (and the surcharge), and you may be subject to capital gains tax, too. You should always seek professional tax advice first to determine whether Limited Company incorporation would benefit you and your property investments in the long term.
Limited Company incorporation can be a complex and, at times, challenging process. To read more about this process, read our blog here.
How we can help you with Limited Company BTL investment
Whether you’re just starting out in buy to let and need a Limited Company buy to let mortgage or want to incorporate a personally owned portfolio into a Limited Company structure, our team of experts can help.
18th October 2023