Advantages of using Limited Company Mortgages
- Higher tax relief – From 2017 to 2020 the amount of Buy to Let tax relief individual landlords can claim back will be progressively cut from a maximum of 45% to 20% for top rate taxpayers. However, this change does not affect limited company mortgages. Therefore, if you are a top rate tax payer, the tax payable with a limited company mortgage will be lower than tax on individual income.
- No tax on dividends ≤£5,000 for individuals – from April 2016, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance of £5,000. This means you can potentially receive tax free dividend income from their investment properties.
- No income tax when reinvesting profits to secure further properties – Your client could grow a BTL portfolio more quickly using a limited company mortgage as there will be no income tax on the retained profit, thus allowing more cash to re-invest. Although corporation tax is payable on trading profits (20%; 2015/16; reducing to 18% by 2020), this is lower than the higher income tax rate (40% for £31,786 to £150,000; 2015/16).
- Personal funds can be drawn back out of the company – any advances your client makes to their limited company (e.g. the mortgage deposit), they can draw back out of the company by way of Directors Loan.
Disadvantages of using Limited Company Mortgages
- No Capital Gains Tax (CGT) allowance when the company sells a property – whereas individuals selling a property would have £11,100 CGT allowance (2015/16)
- Additional cost of running a limited company – such costs include the preparation of accounts, company tax and corporation tax calculations for HMRC, filing at Companies House, legal fees, and annual auditing if applicable. A client’s accountant may also charge higher fees when preparing accounts for limited companies.
- Higher mortgage rates – Most lenders charge higher interest rates and fees for limited company mortgagess compared to individual buy to let mortgages.
Limited Company Mortgage requirements
A new limited company needs to be established, the vast majority of lenders will require a specific type of limited company to be set up. You can borrow under a trading limited company, but the options are slim and it recommended to set up a brand new Special Purpose Vehicle (SPV) with specific SIC codes relating to Real Estate (68100 or 68209), which the vast majority of Ltd company lenders prefer. Generally, the lender requires the limited company to be incorporated before agreeing a decision in principle, so this must be arranged first.
Lenders that offer Limited Company Mortgages
We have a significant number of lenders available currently, and this list is growing steadily as the demand for limited company mortgages increases.
- Cambridge and Counties
- Kent Reliance
- Leeds BS
- Metro Bank
- National Counties
- Norwich & Peterborough