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Mortgage guide for Ltd Company Buy To Let investments

If you are considering a Buy To Let (BTL) property investment, you may also want to consider running this through a Ltd company to take advantage of some of the tax benefits this could bring to you.

Before reading this guide in more depth you may wish to familiarise yourself with our mortgage guide for Buy To Let investments to help you decide what the best option for your circumstances are.

What makes a Ltd Company BTL different?

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 to 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 a 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 tax payers, as they can use a more corporate structure to access finance and the associated tax efficiencies.

How can you get a Ltd company BTL?

First, you need to set up a Ltd company. At Principle Mortgages 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.

What is the criteria for a Ltd company BTL?

There isn’t much difference in the lending criteria and requirements. Rental income and property yields are assess in the same way and typically range between a 20% and 40% loan to value, with anticipated rents being 25% to 30% higher the monthly mortgage payment.

What are the advantages of a Ltd company 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 tax payer. However, with corporation tax rates being reduced, running a BTL property via a Ltd company, could reduce your tax liabilities.

Are there any disadvantages?

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 it’s 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.

As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.