A Buy-To-Let Mortgage Guide for Limited Companies

A Buy-To-Let Mortgage Guide for Limited Companies


Certain benefits are available for limited companies that choose to take out a buy-to-let mortgage. Through this guide, we’ll let you know what makes them different from regular buy-to-lets, what options might be available to you, how to get started, and how to make your investment work for you.

If you want any more advice or information, simply contact Orchard Mortgage Solutions.

Planning and taxation benefits

Property held by a limited company may provide some tax benefits under certain circumstances – for example, it may be more tax-efficient for higher-rate taxpayers than buy-to-let properties that are held personally.

Why? Put simply – tax is paid on rental income. So a personally held buy-to-let property’s rental income is classed as your personal income. That may well have an effect of pushing you into a higher Income Tax band. The more you earn, the more you have to pay.

The rent on a property held by a limited company, however, isn’t classed as personal income, so it won’t fall under Income Tax rates. They’re instead charged under Corporation Tax rates, which stand at 19% for the 2019-2020 tax year. Unlike Income Tax, Corporation Tax doesn’t have a tiered system; there is one rate that you’re charged, regardless of the profit scale.

Be sure to consult the specialists at Orchard Mortgage Solutions before making any decisions.

Tax Relief Restrictions

For a four-year period commencing April 2017, there is a restriction on the tax relief private landlords can claim.

Finance costs cannot be automatically deducted from rental income. On the other hand, you can still deduct them from buy-to-let properties owned by a limited company, as it’s considered a business expense.

Buy-To-Let Mortgage Advantages for Limited Companies

Simplicity and Ease
It’s easy to set up a limited company. All it takes is roughly fifteen minutes, and you can even do it online. Be sure to consult a qualified financial professional, however, to make sure you do it correctly.

Planning for the Future
It’s much easier, simpler, and quicker to transfer a limited company between owners than it is to transfer a privately owned property. Keeping a property under company ownership helps mitigate Stamp Duty, Capital Gains and Inheritance Tax.

Expanding Your Portfolio
Keeping profits within the company ensures they remain considered a business profit rather than a “Capital Gain”. As such, your earnings can be used to help improve and expand your property portfolio.

Limiting Liability
Holding a limited liability company ensures you’re not personally liable for any of the company’s debts – including those on the buy-to-let. Personally, guarantees are often required by mortgage lenders, however, and you’ll still need to provide and honour them.

Buy-To-Let Mortgage Disadvantages for Limited Companies

No Capital Gains Tax Allowance
As the profits from the buy-to-let are taxed under Corporation Tax guidelines, you won’t be able to take advantage of the Capital Gains Tax Allowance. Whether this is a disadvantage or not depends on the amount of profit you get from the property’s sale.

Company Running Costs
Running a limited company isn’t free. You’ll have to consider the cost of accounting, corporation tax, Companies House filing charges, legal fees, and annual auditing costs if they’re applicable.

Higher Mortgage Charges
Many lenders will charge a slightly higher rate of interest and have steeper fees for limited companies, as opposed to private individual buy-to-let mortgage applications. This isn’t universal, however, so shop around.

Limited Lender Choice
Not all mortgage lenders offering buy-to-let mortgages cater to limited company applications and many that do only have a comparatively limited selection of packages available.

Buy-To-Let Limited Company Set-Up

Registering with Companies House costs from just £12 and can be done by post or online. A few things you should bear in mind, however, are:

  • Creating a unique company name
  • Appointing at least one Company Director
  • Providing a definition of business activity
  • Getting an address for your company (can be residential)
  • Setting up a business bank account
  • Applying for Corporation Tax within 3 months

Running a Limited Company

Running a Limited Company is much easier than many people think; however, there are some things you need to be aware of.

Director Duties
Basic functions such as registering with Companies House, managing accounting records, and ensuring tax is paid on time are Directors’ duties. These tasks can be outsourced, but you must retain personal oversight.

Accounting Records
Accurate company and accountancy records are a must. A “Confirmation Statement” must be submitted annually within 14 days of the company’s incorporation anniversary. This is in addition to normal annual accounts and tax returns. You’re obligated to keep records for at least 3 years and inform Companies House and HRMC of any company changes.

Drawing Company Funds
You have various options, such as salaries, expenses, benefits, shareholder dividends, and directors’ loans, when it comes to taking money from the company. The taxation rules with each are different, however, so seek appropriate advice first to ensure you can make an informed decision.

Getting Landlord Insurance

All properties need insurance, and getting landlord insurance is a wise investment. The right cover for you will be likely found on a specialist landlord insurance policy, which may even allow you to insure multiple properties on the same policy – perfect for a growing portfolio.

Seek Professional Advice

Setting up and using a Limited Company for a buy-to-let mortgage has many benefits, but it’s essential that you’re fully informed every step of the way before you make a decision. For that, you need to invest in the services of a financial professional. Orchard Mortgage Solutions can offer you the right peace of mind to ensure you make the correct step, every time.

If you’re still unsure if setting up a Limited Company is right for you, or you need any help or assistance in establishing your company and making the application, contact Orchard Mortgage Solutions today. We can help point you in the right direction, establish your Limited Company, and make sure you have the right mortgage options available to you.

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