Trading Limited Company Buy to Let Investment

Why is investing through a trading limited company so different to an SPV? Jeni Browne explains some of the reasons for and against investing in buy to let property through your trading limited company.

Unless you’re very new to the game, you’ll probably be aware that investing in buy to let property using an SPV limited company is commonplace. However, many investors opt to purchase buy to let property using their trading limited company.

Why invest in buy to let through a trading limited company?
One of the most common reasons you might consider investing in buy to let via a trading limited company is if your company has cash funds available that you wish you invest. Often, drawing these funds down into your personal account incurs a tax bill, so investors are always on the lookout for tax-efficient ways of transferring money.

We’ve recently written about layered limited company structures, where a trading limited company owns an SPV limited company that purchases property. An increasing number of our clients choose this method as it’s relatively straight forward to move cash from one to the other.

On the other hand, using a layered structure adds a degree of complication; you’ve got to set up another limited company, which you’ll need to keep accounts for etc. For many of our clients, this is unnecessary additional admin they’d understandably rather avoid! We tend to find that clients looking to invest in one or two buy to let properties using company cash savings are happy to apply through the trading limited company. For those wanting to build a substantial investment property portfolio, it’s usually more cost-effective to use other structures.  

Why do some buy to let investors opt not to use a trading limited company?
One of the main drawbacks of investing via a trading limited company is only around 11 buy to let lenders accept them. The available mortgage rates are not always as competitive as they are for SPV limited companies or individuals.

The reason a lot of buy to let mortgage lenders don’t accept trading limited company applications is to do with risk. Unlike SPVs, where the only activity is purchasing and selling property, trading limited companies have many more factors that can impact finances. Not only is this more complex to underwrite, but it increases the risk of financial difficulty and, therefore, mortgage defaults.

To mitigate this risk, all the lenders available to trading limited companies require personal guarantees, and some need a fixed and floating charge debenture over the company itself. Understandably, many business owners would rather avoid debentures and opt not to invest through their trading limited company directly.

At the end of the day, the best way to decide how to invest in buy to let property is to speak to a professional tax advisor. We can provide mortgage illustrations for you to compare investment structures, but a qualified tax specialist will determine the most tax-efficient method for you in the long run.

If you have any questions about trading limited company mortgages, do not hesitate to give our team a call on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk.

NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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