MFB Live! Buy to Let Landlord Q&A – Part II
We had so many brilliant questions from landlords for MFB Live! we wanted to make sure they all got answered by our expert consultants.
Q: What are the possible pro’s and con’s (including tax implications) of transferring a fourth buy to let property into my limited company, as opposed to selling?
A: A professional tax adviser should answer this question as it depends on your financial circumstances. As you are probably already aware, the main tax benefit of investing via a limited company is that you are charged corporation tax (currently 19%) rather than income tax. If you’re a higher rate taxpayer (above £40,000 annual income), you can save you a lot on your tax bill using this investment structure. Of course, you’ll need to weigh up whether the cost of purchasing the property into your limited company, including the stamp duty tax. If you’d like a mortgage proposal for the property to help you and your tax adviser weigh up the financial benefits of the process, do get in contact and we can help you that way.
Q: We have a property in probate which is two semi-detached properties, knocked into one large detached house. We have planning permission to reconvert the property back into two semi-detached houses with a view to renting them out after. We don’t know whether it’d be better to place the properties into a limited company straight from probate as there are mortgages to be redeemed.
A: From a buy to let mortgage perspective, you can obtain funding after the conversion works are complete for either a limited company or personally owned investment structure. There are pro’s and con’s to both; however, most people’s motivation for limited company investment is tax-related. Therefore, before you do anything else, you need to speak to a tax adviser who can run through the permutations of both types of ownership and the impact this will have. If you’d like a mortgage proposal for both options to help aid your decision, please do get in touch!
Q: What are the lenders’ views on limited companies using the Government COVID support loans as a way of financing buy to let portfolio expansion?
A: Mortgage lenders will always check the source of any deposit before accepting an application. As a rule, they will not accept deposits which are loans of any kind. Therefore, you will not be able to use the Government’s Bounce Back loan or any other COVID-19 support loan as a deposit for a property.
Q: I have a few properties owned in my name and am wondering whether it’s worth transferring them into a limited company. How easy is it to obtain a limited company mortgage?
A: Hopefully, I’ve answered the second part of your question about the ease of obtaining a limited company mortgage in Part I of these Q&As. What I will add, is that over the years I’ve had many clients who thought the application process for limited company mortgages was going to be complicated; however, they have been pleasantly surprised at how straightforward it is! If you’re unsure, a broker will be able to help you.
Concerning whether it’s worth transferring your personally owned property into a limited company, you must speak to a professional tax advisor. The reason I say this is the motivation for most landlords to use a limited company for buy to let investment is the tax benefits; however, this depends on your individual circumstances. What we tend to do for clients is put together a proposal which compares the types of mortgage rates available to you if you were to invest in your personal name or a limited company and the additional costs associated with valuations and arrangement fees. You can then take this to a tax advisor or accountant who can do the maths on the various tax implications, and you can make an informed decision on which is better from a financial perspective.
Q: What are the current age restrictions for buy to let mortgage applicants?
A: This is an excellent question. We all know that we’re living longer, and we’re seeing an increasing number of clients in their 70s and 80s looking for buy to let mortgages. Thankfully, lender criteria have moved on to accommodate this part of the market.
In terms of actual maximum age, the traditional lender stance was that borrowers would have repaid their mortgages by their 75th birthday. However, we have lenders who will happily accept a 25-year term mortgage application from a 75-year-old investor! It’s fair to say there is a narrower choice of lenders when applying for mortgages in later life; however, it’s certainly not impossible!
Q: I currently do not own any properties and am looking at purchasing an investment property and a personal property to live in. The property I want to live in is valued at £900,000, and the investment property £150,000. I intend to place the investment property into a limited company. My question is, does the order in which I buy these have an impact on the stamp duty I have to pay?
A: The good news here is that it won’t make a difference to the stamp duty. When you purchase a property into a limited company, you will always pay the 3% stamp duty surcharge, so whether you buy it before or after your personal property purchase won’t matter. If you only own a property in a limited company, the first property your buy in your personal name will not attract the second home surcharge. It would only make a difference if you were also purchasing the investment property in your own name, in which case you’d want to purchase the cheaper property second, as you’ll incur less stamp duty tax.
Q: What is the most cost-effective method to finance the deposit for buy to let properties from unencumbered properties?
A: The most common way, and something we do all the time for clients, is to remortgage the un-encumbered property, during which you can release the equity needed for your buy to let property deposit. Mortgage rates are excellent at the moment, with five-year fixed rates starting from around 2% for individuals, and around 3% for limited companies.
Jeni Browne: jenib@mortgagesforbusiness.co.uk | 01732 471647
14th October 2020
