Limited Company Buy to Let Mortgages

If you already own BTL properties, recent changes to mortgage interest tax relief could mean growing your property portfolio could become more expensive. By setting up and running your BTL property through a Ltd company you could avoid losing out on tax relief.

On the surface, there is little difference from a regular BTL mortgage. The main difference relates to how lenders assess your suitability for a loan, with many high street mortgage lenders being less willing to lend to Ltd companies due to perceived higher risk.

However, as the number of BTL landlords choosing to set up and run their properties through Ltd companies increases, so does the number of mortgage options available to them, with lenders delving deeper into personal finances and income situations.

This is typically becoming more popular for higher rate taxpayers, as they can use a more corporate structure to access finance and the associated tax efficiencies.

First, you need to set up a Ltd company. At Principle Finance we work closely with a reputable firm of Chartered Accountants who can help with this.

The company must be set up under a specific Standard Industrial Classification (SIC) code, with the company being solely set up to deal in buying, renting and selling of residential property.

The option to buy a BTL property through a Ltd company is open to anyone, however, it is subject to the specific criteria of the lender, which can mean accessing deals is more restrictive as opposed to a person BTL.

As covered above, the main advantage of a Ltd company BTL is in relation to tax efficiency. Any money drawn out of the business will be taxed at the usual business rates but leaving money in the business for property maintenance, renovation, and refurbishment, or to purchase additional property will result in you paying the lower rate of corporation tax.

Private landlords will only be able to claim mortgage interest tax relief at the basic rate of 20%, even if they are a higher rate taxpayer. However, with corporation tax rates being reduced, running a BTL property via a Ltd company, could reduce your tax liabilities.

As with many business ventures, there are pros and cons to consider, and purchasing a BTL property through a Ltd company doesn’t come without its disadvantages, as finding a BTL mortgage deal could prove to be more difficult to set up with less options on the market and potentially higher interest rates.

There are additional administrative costs to consider as well, such as higher accountancy fees, corporation tax, Companies House fees and legal fees.

The best way to make a decision on remortgaging is to speak to an independent mortgage adviser, or an IFA who specialises in mortgages. Your adviser can review your current deal and take your financial circumstances into account to find you the best deal from the whole of the market.