Limited company buy-to-let mortgage

Yes, there absolutely are other forms of funding available to limited companies looking to invest in buy-to-let properties. While commercial mortgages are designed to provide funding to businesses looking for long-term repayment structures, there are several forms of funding available to businesses looking for short-term business loans. 

Bridging loans 

Bridging loans are designed to bridge gaps between funding. Let’s say you find a property you’d like to purchase today. You intend to sell a different property to pay for the new one. You’d like to purchase the new one now so that it comes off the market ASAP, but the sale of your current buy-to-let property will take a little longer to complete. A bridging loan could help you pay for the new property today, and you can then repay the loan once the sale on the previous property is completed. 

Auction finance 

Auction finance enables you to purchase a property at auction. You don’t need to have the property chosen out in advance, and it functions similarly to a short-term business loan that can be paid back once you secure further funding, for instance, in the form of a commercial mortgage. 

Some people choose to use a limited company for buy-to-let properties because of the tax efficiently, centralised nature of property ownership, and limited liability qualities of a limited company set up. There are also branding benefits, including a more professional place for tenants to send their rent to in the form of a business bank account. 

For higher rate tax payers, taxes can go up to 40-45% of profits. However, corporation tax sits at 25%, even if the profits surpass several hundred thousands of pounds. Some investors find this, along with certain succession possibilities and capital gains vs reinvestment options to be beneficial when compared to owning property as a private landlord. 

Personal tax allowance 

There can be, yes. For starters, while the 25% corporation tax rate is below the higher tax earning rate of 40-45%, private tax payers get a £12,500 personal allowance and lower threshold taxpayers pay closer to 20%. There is also the possibility for double taxation, as investors looking to withdraw funds from their business need to pay dividends tax or income tax on any income they withdraw from the business. 

More admin

Founding, managing, and running a company can come with a substantial amount of administrative labour, which can eat into your free time. 

Legal responsibilities 

Limited companies come with legal responsibilities, such as submitting annual accounts to Companies House and ensuring proper contracts of employment are in place for any internal team members. 

It depends on exactly what you mean. You cannot simply open a limited company and transfer the properties you own as a personal landlord into the company’s name. What you can do is sell your properties to your company, but be aware this could incur stamp duty and capital gains tax, so be sure to speak to a tax professional before making any decisions. 

Possibly, yes, but there are tax and mortgage implications. It depends on how you set up the business and the property ownership. You might need a semi-residential mortgage, and you may have to pay personal tax on this as it could be considered a benefit-in-kind. Consider speaking to a legal advisor. 

Rather than purchasing property as a private landlord, limited company buy-to-let mortgages are taken out in the name of your company. This means the property is owned by the company, revenue (rent) goes into the company, and the mortgage is paid by the company. Some lenders ask for a personal guarantee from the company director, which can mean the director is still responsible for repayments even if the business is unable to pay. 

You may follow a process similar to this: 

1. Find a property you’d like to purchase 

2. Get an assessment done of the likely rental value of the property. An estate agent may be able to help here 

3. Apply for a buy-to-let commercial mortgage. Remember, you will likely need at least 25% of the value of the property upfront to pay as a deposit 

4. Contact a surveyor and ask them to find out if there is anything unexpected about the property 

5. Complete the sale on the property by signing any legal documents, sending them the funds, and picking up the keys 

6. Rent out the property, collecting rent under your company name to a business bank account 

7. Repay your limited company mortgage on a recurring basis (usually monthly) with interest

In the context of buy-to-let, an SPV is a separate legal entity set up for the sole purpose of managing and letting properties. 

Let’s say you intend to use your business for the purposes of purchasing, renting, and managing buy-to-lets only. Which means you have zero plans of significantly developing the building into a different property type and then selling that new property on for a profit, or of holding any other assets, such as stocks and shares in other businesses, or of buying and selling properties quickly for a short-term profit. In this instance, an SPV could be suitable and might help you reduce some of the administrative and accounting burden involved in running a business. 

Yes, you cannot buy properties for sole residential use through a limited company. This is because companies need to pay for business expenses, and purchasing a property for you to live in falls outside of this remit. Lenders may also have restrictions on the types of properties you can purchase, and these will vary by provider. 

You should consider the costs of an accountant or accounting tool. How much this will cost will depend heavily on your accounting set up – for instance, many accountants charge more for businesses that turn over a greater amount of revenue, as there is more work involved where there are more expenses to categorise. 

You may also like to consider the cost of a mortgage. Costs usually include interest charged on the value of the loan, which can be fixed or variable, as well as arrangement fees, and possibly late payment fees if you do not meet your payment obligations in time. 

Survey fees, conveyance costs, the cost of an estate agent and stamp duty may also be costs you might need to consider. Similarly, there are certain taxes you may need to pay, for instance, corporation tax and potentially dividends tax if you decide to take out profits from your business. 

Yes, foreign investors may be able to set up a limited company as a way to purchase and manage their buy-to-let investment portfolio. This could give the investor the ability to manage taxes, estate agents, and mortgages from a UK bank account and location, which the limited company would be registered to. Also, there are complications involved for any tenants needing to send funds abroad, a limited company registered in the UK with a UK bank account could circumvent this. 

Yes, as long as you’re over the age of 16, you may be able to set up a limited company. Limited companies are not restricted to those with experience in the industry. However, if you do have experience renting properties, this may help you secure a buy-to-let mortgage with greater ease. 

Limited companies pay corporation tax, which is around 25% on profits. If your business earns more than £85,000 in any 12 month period, you are also required to charge VAT on any relevant sales and services, which you must then pay to the government. You can, however, also claim back VAT on any relevant expenses incurred. 

When taking funds out of your limited company, you will likely be charged dividends tax or PAYE tax, which will come in the form of employer and employee national insurance and income tax. 

Limited company mortgages often come with higher interest rates than personal mortgages. There are also usually fewer options. This is why using a broker like Funding Options by Tide can be helpful for companies looking for funding, as you may get access to a wider pool of options than going the lender search alone. 

Absolutely, and in fact, owning only one property under a limited company set up with no intention of purchasing further buy-to-let properties may not be as wise a choice as setting up a limited company to manage multiple properties. This is because the administrative work involved in setting up and managing a business is necessary even if the company only owns one property. Also, as a private landlord, you have a £12,570 tax allowance if this is your sole source of income, which you would not have as a limited company. 

There are several important considerations to bear in mind when selling a property as a limited company. For starters, you’ll need to agree terms with your current tenants. Are they happy to move out? Is their tenancy up? Have they already decided to move and this is simply a case of not finding new tenants? Or, do they want to stay in the property and are happy to work with a new landlord once the sale goes through. 

Secondly, you’ll want to speak to your lender about repaying the full mortgage once the sale has been completed, and about setting up a new mortgage for any further properties you intend to purchase with the funds from the sold one. You may need to pay corporation tax, stamp duty land tax on a new property purchase, and you might need to pay dividends tax for any profits you withdraw from the company. You might like to speak to an accountant, estate agent, and legal advisor before selling a property as a limited company. 

Not necessarily, but it’s highly recommended. Particularly if you are managing multiple properties. If you prefer to work without an accountant, bear in mind that corporation tax is not the only tax you’ll need to pay. You must submit your accounts to Companies House, track and submit your VAT returns, and ensure you’re paying personal tax correctly – namely that you’re processing your salary through PAYE or paying dividends tax if you’re withdrawing profits as a director. 

There’s no reason you can’t, and it’s a fairly common practice. Appointing a family member as a shareholder or director can also help your family if you intend to retire and pass on the business to a descendant, as this gives them time to get to grips with how the business is run. Remember that being a company director is a legal responsibility and there are certain activities you or your family member will need to ensure are correctly performed, for instance, submitting annual accounts to Companies House. 

If you’re concerned about inheritance tax we highly recommend speaking to a legal professional – online resources can only go so far and circumstances are unique to each business and individual. 

However, during your search, you might like to look into business relief for inheritance tax, which provides relief of either 50% or 100% on the estate’s business assets. Property and buildings are popular assets on which relief is claimed. You must prove that the property plays an active role in your business activity, which if you’re running a buy-to-let business, it likely will. 

Some business owners choose to make descendants shareholders or company directors of the business, so that when the owner retires or passes away, the properties belong to the business, not the individual, and the descendant already has a steady handle on how things are run.

When it comes to whether setting up a limited company for buy-to-let is worth it, the answer to this depends heavily on your goals and circumstances. Let’s break this down.

Example A: If you own and manage two buy-to-let properties, earning a rental income of £650 each, you may be receiving around £15,600 in income. Given the personal tax allowance of around £12,570, running a limited company may not be “worth it” since the amount you would pay in tax could be substantially less than the 25% corporation tax plus dividends tax you might pay as a limited company. 

Example B: Let’s say you own 50 properties which you rent out. You turn over a profit of approximately £200,000, and receive funds from many tenants. You have many expenses to manage, including a range of mortgages and estate agent payments. In this case, the 25% corporation tax might make a buy-to-let limited company a suitable option, along with the centralised accounting and legal nature of a limited company. 

You’ll need to pay to establish the company, which at the moment costs around £50, but can be reduced down to £14.99 by using Tide’s service. You will likely also need to pay for an accountant to manage and report expenses, or at the very least, a digital accounting tool. 

Sort of, but it’s not as simple as it sounds. You may need to pay stamp duty and capital gains tax. You should strongly consider speaking with a legal and tax advisor before doing this.