Why Set Up a Limited Company?
The changes outlined on our Recent Tax Changes page don’t apply to buy-to-lets owned by a limited company. Properties held in a limited company are viewed as a business and as such all expenses can be written off for tax purposes.
Limited companies pay Corporation Tax, not Income Tax, and as such are not affected by the changes to tax relief on finance costs for personal BTL borrowers.
As everyone’s circumstances are different, we advise you speak with a tax advisor who will look at your circumstances and advice you on the most cost-effective way to proceed.
Which Types of Limited Companies Can Get a Mortgage?
Special Purpose Vehicle (SPV)
A special purpose vehicle is a company that was set up to trade only in rental property. They typically have one of the following Standard Industry Classification (SIC) codes registered at company’s house.
- 68100 – Buying & sell own real estate
- 68201 – Renting & operating of housing association real estate
- 68209 – Other letting & operating of own or leased real estate
- 68320 – Management of real estate on a fee or contract basis
Trading Limited Company
If you hold property in a trading company that already runs as a trading business in another field, it is still possible to obtain a mortgage against the property. Jordan Lynch have excellent relationships with several private banks and specialist lenders who can assist.
Due to the limited liability any debts incurred by a company are the company’s liabilities and are not directly the legal liabilities of the shareholders or of the directors of the company. A personal guarantee gets around the “limited liability” a limited company typically offers and puts you the shareholder/director on the line for the debt.
Allowing a mortgage lender to assess your circumstances, your income and your assets. It has given them reassurance that in the event of a default they can pursue any unpaid amounts from you. This means that should the lender have to repossess the property and after sale, they are still owed money, the person offering the personal guarantee will be liable for that balance.
Can I Transfer My Property into a Limited Company?
Yes, you can however there will be costs involved. The transaction must be treated as a sale by you to your company triggering Capital Gains Tax on the sale as well as stamp duty (SDLT) including the 3% surcharge on the purchase by the limited company. On top of this there would also be legal and mortgage costs.
To get an accurate idea of the costs involved we suggest you speak with your Accountant. It is also important to note that limited companies do have running costs and legal requirements such as filing accounts. However, you will gain the advantage of tax-deductible expenses such as mortgage broker fees and lender arrangement fees.