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10 most asked questions about incorporating a buy to let portfolio

We get lots of landlords asking us about incorporating their buy to let portfolio. In this article, I’ve tried to answer the most common questions landlords ask when making the decision to incorporate.

Changes to the income tax regime for residential landlords and stricter lending criteria as set out by the Prudential Regulation Authority is forcing landlords to review how they operate their property portfolios. For some owning and borrowing personally will be the most effective route, but for many, particularly those in the higher tax brackets, incorporation is the answer.

Before I go on to answer the most commonly questions we get asked about buy to let landlords incorporating their portfolios, I would urge any landlord who hasn’t yet sought professional advice in this regard, to do so as a matter of urgency. Landlords, you need to know exactly where you stand on this issue. So please, talk to your accountant or qualified tax specialist before making any decisions.

1. Can I transfer my buy to let properties into a Ltd company?

No! By law, you can't simply "transfer" properties, instead the transaction is viewed as a sale from you personally into the Ltd company. This means you and the company will need to take into account any costs of sale/purchase, such as but not limited to:

  • In England and Northern Ireland, Stamp Duty Land Tax* (SDLT) including a 3% surcharge even though it might be the company’s first purchase.
  • In Wales Land Transaction Tax (LTT) including a 3% surcharge even though it might be the company’s first purchase.
  • In Scotland Land and Buildings Transactions Tax (LBTT) including a 3% surcharge even though it might be the company’s first purchase.
  • Legal fees and disbursements 


2. Can I stay with my current lender?

When you incorporate your portfolio, you stop being the owner of the properties, as you are selling them to a Ltd company. Some lenders may allow this to happen without asking you to redeem your current loan (possibly avoiding ERCs) and starting over with a new application, but these are lenders who offer buy to let mortgages to landlords using Ltd companies.

For example, if you have a mortgage with, say, BM Solutions which does not lend to Ltd companies, then no, you cannot stay with them.

If you have a mortgage with a lender which does accept Ltd company applications, then they may allow you to stay. But to be clear, they are not obliged to, so you would need to ask the question and also check to see whether you will be charged fees by the lender, to enable the transfer of the mortgage to the Limited Company.

3. Does the company have to have cash in it, for the deposit?

No! When you sell the properties to the limited company, any equity you leave in them will be treated as a director’s loan which means that as long as you have sufficient equity in the properties, you will not need to put in cash.

4. Can I borrow more than I currently owe?

Yes! As mentioned in my first answer, from a mortgage lender’s perspective, this type of transaction is treated almost as if the company were buying the property from an unrelated third party. So, you can borrow as much as you need - within the lender’s limits. We frequently see borrowers who will re-gear the portfolio when they incorporate in order to fund further investments, or to cover the costs of incorporation.

5. I currently own buy to let property in just my name, but want my spouse to be a shareholder in the company, will this be an issue?

No! From a lender’s perspective, as long as you (as the current owner) will be part of the new company, then this is not an issue.

6. The properties are worth £150k each, do I have flexibility on the price at which I transfer them across?

Lenders will require you to sell the properties at the open market value, so in this case, £150k. If you sell them for less, this would be viewed as an under-market transaction which the lenders do not allow, plus the tax man would take a very dim view!

7. Can I set up a new company or does it have to have been trading for a period of time?

You can set up a brand-new company which has no trading record. Usually, lenders will take unsupported personal guarantees from the directors and (most often) the majority shareholders. Because of this, lenders are interested in these people and form their lending decision on them, rather than the history (or lack of), of the company.

8. Can I take a single mortgage out on all the properties?

Yes. This type of lending is called a portfolio loan, although do consider the pros and cons before going down this route. The pros are that you only have to service one loan and making one application will keep the upfront costs down. However, portfolio loans tend to fall into the commercial rather than buy to let remit which means that, typically, they are more expensive than a buy to let mortgage. A good broker will give you options for both to consider.

9. Will I have to pay stamp duty?

Most likely yes! As mentioned earlier, any SDLT, LTT or LBTT on most residential purchases made by limited companies, including the first purchase, will incur a 3% surcharge. If you come across a scheme which allows you to avoid paying the stamp duty, BEWARE and take property legal advice. If it seems too good to be true, it probably is!

10. Will I have to pay capital gains tax?
Most likely yes! Again, take proper legal advice and avoid “too good to be true” schemes! From a mortgage perspective, lenders will be comfortable with bona fide schemes ONLY if they can be sure that all liabilities can be satisfied and you will not find yourself with a big, unexpected tax bill down the line.

I hope that this helps. Remember, take professional advice before making any decisions. You might find that your accountant recommends that you continue to hold any properties you already own personally and only set up a limited company for new acquisitions. There really isn’t a “one answer fits all” solution.

If you’d like to chat through these Q&As, or if you have any properties requiring buy to let finance, do get in touch to talk through the options. Both the buy to let and commercial team here have lots of experience in this field, so don’t be afraid to ask. Before you make any decisions, our advice is free and without obligation, so what are you waiting for?!!


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