Limited company buy to let mortgages

The short answer

If you pay higher-rate tax, buying through a limited company usually lets you borrow more and keeps more of the rent after tax. If you are a basic-rate taxpayer with one or two properties, it is often not worth the extra cost. Your accountant should make the final call.

Why landlords use a company

• Mortgage interest. Individuals can only claim a 20% tax credit on mortgage interest (the Section 24 rules). A company deducts the full interest as a cost before corporation tax.
• Rental cover. Lenders usually test company borrowing at 125% of the interest, not the 145% many apply to higher-rate taxpayers. On the same rent, that can mean a bigger loan.
• Growing a portfolio. Profits taxed at corporation tax and kept in the company can fund the next deposit.

What lenders look for

• A special purpose vehicle (SPV). Most lenders want a company that only holds property. The usual SIC codes are 68100, 68209, 68320 and 68201.
• Personal guarantees from every director and shareholder.
• Experience. Some lenders will not lend to first-time landlords through a company. Others will.
• The property. Same as any buy-to-let: value, condition, rent and location. Low-value properties narrow the choice. See low-value North East property.

The costs that catch people out

• Rates are often slightly higher than personal buy-to-let.
• Accountancy and company filing costs every year.
• Moving properties you already own into a company is a sale. It can trigger stamp duty and capital gains tax.
• Getting money out of the company as salary or dividends is taxed again.

Is it regulated?

No. Lending to a limited company for property investment is not regulated by the FCA. That is why we can talk to you about it now. If you or your family will ever live in the property, it is different, and you need a regulated adviser.

Common questions