There are many considerations to setting up a Limited Company for Buy To Let property portfolios. Speak to one of our mortgage brokers to find out if this would be beneficial to you and your future plans.
Buy to Let Investment :
Limited Company
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
An increasing number of buy-to let property investors now purchase properties through Limited Companies rather than having their own names. This allows them to offset all mortgage interest against rental income before paying tax, which means that whilst individual landlords are effectively taxed on turnover; company ones will be taxed only when they make a profit!
Advantages
Dividend Allowance – All directors receiving dividends receive the first £2000 tax-free.
The dividend allowance in the UK for the 2023/23 tax year (6th April 2023 to 5th April 2024) is £1,000. This allowance is in addition to your personal allowance.
No income tax when reinvesting – If profit is retained and reinvested, there will be no income tax on the profit allowing more cash to re-invest.
Personal funds can be withdrawn – Any advances made into the limited company (ie the mortgage deposit) can be withdrawn by way of a directors loan.2
Disadvantages
Corporation Tax – is payable on trading profits = 19% (2023-24 tax year). For profits in excess of £250,000 corporation tax = 25%
No Capital Gains Tax allowance – Individuals receive £6,000 CGT allowance (2023/24) when selling a property. This is not applicable to limited companies
Additional accountants costs – Accountants have additional work to carry out for Limited companies: Company Tax and Corporation Tac calculations for HMRC, filing at Companies House, legal fees and annual audits if applicable.
Higher mortgage rates – Most lenders charge a higher rate of interest and fees for Limited Companies compared to individual Buy to Let mortgages.
Reduced choice of lenders – Only a few lenders offer Buy to Let mortgages to Limited Companies.
Key Facts & SIC Codes
The limited company must be used for the sole purpose of residential investment property and no other business. The Limited company must be registered at Companies House and the appropriate SIC code must be in place.
- 68100 buying and selling of own real estate
- 68209 Other letting and operating of own or leased real estate
- 68320 management of real estate on a fee or contract basis
- 68201 renting and operating of housing association real estate
The limited company must be registered in England & Wales and will be accepted as soon as its fully incorporated.
All directors and shareholders will be underwritten. The primary director must meet the mortgage criteria.
Personal guarantees may be sought from all directors and shareholders, and therefore will be individually and collectively liable for the mortgage.
Credit referencing will be obtained for the Limited Company and all directors and shareholders
Should you transfer to a limited company?
This really depends on your future plans. You would be liable to pay Capital Gains Tax and Stamp Duty (SDLT) on selling the property to the Limited Company. If you plan to expand your portfolio, the benefits of doing so via a Limited Company structure may be worth paying these one off costs.
I already have a Limited Company
If your Limited Company is trading in other industries than real estate, you would need to setup a separate Limited Company with the appropriate SIC codes applied.
If you want to change a SIC code from one previously entered, you must file an annual return. (either resubmit, an early return or wait until the next return)
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
FAQs
about
Ltd
company
BTL
mortgages
What is a limited company buy-to-let mortgage?
A limited company buy-to-let mortgage is used when a rental property is owned by a company rather than an individual. The mortgage is taken out by the company, often a special purpose vehicle (SPV), and rental income is received by the company rather than personally.
Why do landlords use a limited company for buy-to-let?
Many landlords use a limited company to improve tax efficiency, particularly since companies can usually deduct mortgage interest as a business expense. This structure can be more suitable for higher-rate or additional-rate taxpayers.
What is an SPV for buy-to-let?
An SPV (special purpose vehicle) is a limited company set up solely to hold rental property. Most lenders prefer SPVs with standard SIC codes related to property letting, as this simplifies underwriting.
How much deposit is needed for a limited company buy-to-let mortgage?
Most lenders require a minimum deposit of around 25% for limited company buy-to-let mortgages. Some lenders may ask for higher deposits depending on property type, experience, or rental coverage.
Are limited company buy-to-let mortgage rates higher?
Interest rates for limited company buy-to-let mortgages are often slightly higher than personal buy-to-let rates. However, for some landlords, the overall tax position can still be more favourable despite the higher rate.
How is affordability assessed for limited company buy-to-let?
Affordability is usually assessed using the expected rental income, stress-tested at a higher interest rate. Personal income is less important, although directors may still be assessed for background and experience.
Can first-time landlords use a limited company?
Yes, some lenders allow first-time landlords to purchase through a limited company. Criteria may be stricter, and lender choice can be more limited without prior landlord experience.
Can I transfer an existing buy-to-let into a limited company?
It may be possible, but transferring a property into a limited company is treated as a sale. This can trigger stamp duty and capital gains tax. Mortgage refinancing would also be required.
Does Section 24 apply to limited company buy-to-let?
No. Section 24 applies to personally owned buy-to-let properties. Limited companies are not subject to Section 24 restrictions and can usually deduct mortgage interest in full before tax.
Are directors personally liable for limited company buy-to-let mortgages?
In most cases, lenders require directors to provide personal guarantees. This means directors may still be personally liable if the company cannot meet its mortgage obligations.
Can I remortgage a limited company buy-to-let property?
Yes. Many landlords remortgage limited company buy-to-let properties to secure better rates, release equity, or restructure borrowing as their portfolio grows.
Is a limited company buy-to-let right for every landlord?
Not always. While limited companies can be tax-efficient, they involve additional costs such as accountancy fees, potentially higher mortgage rates, and more complex administration. Suitability depends on individual circumstances.
