Landlord client thinking of incorporating their BTL business?
By Liza Campion, Head of coporate accounts, Precise Mortgages
The past few years has seen a huge increase in the number of landlords choosing to run their buy to let business as a limited company.
The tapered removal of mortgage interest tax relief encouraged investors to transfer their properties into a company structure, a process which has only accelerated over the past year as interest rates soar.
The number of landlords holding properties as a limited company recently passed the 300,000 mark for the first time – more than double the number there were back in 20171.
And there’s no sign of the trend slowing down, with nearly six out of 10 landlords saying they intend to purchase their next buy to let property within a limited company structure2.
It’s easy to understand why more borrowers are now operating as limited companies.
With landlords now unable to deduct any of their mortgage expenses from their rental income to reduce their tax bill, many of them are finding it harder to turn a profit.
The new rules, however, don’t apply to limited companies. Landlords who incorporate their buy to let business can offset mortgage interest against profits which, if they’re under £50,000, are only subject to Corporation Tax of 19%, instead of income tax rates. Furthermore, interest coverage ratios on limited company applications are often lower than for most individual applications.
Introducing special purpose vehicles (SPVs)
Landlords thinking of becoming a limited company should think about setting up an SPV to own, buy, sell or let their properties.
An SPV is set up to solely manage buy to let properties. SPVs are considered less complicated and easier to underwrite than a trading limited company, so landlords could find themselves with more options when it comes to looking for a new mortgage.
Setting up an SPV is a relatively straightforward process. A customer can set it up themselves at Companies House or they can ask their accountant or solicitor to do it for them.
They must report a Standard Industrial Classification (SIC) code describing their company’s business when setting up. The following SIC codes may be useful to your client.
- 68100 - buying and selling 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
Please remember that running a buy to let business in a limited company structure may not be suitable for everyone. Customers should always speak with a suitably qualified tax advisor and take legal advice before making any decisions.
How Precise Mortgages could help
We accept applications from newly formed and existing SPV limited companies on our limited company buy to let mortgage range with one or a combination of our acceptable SIC codes, providing they fit our standard lending criteria.
And that’s not all. When the customer already owns a property in their personal name and is looking to sell it to their SPV, we’ll allow the equity to be gifted as the deposit monies, usually in the form of a Director’s Loan Agreement.
Here are just a few other reasons why our limited company buy to let mortgages could be ideal:
- Portfolio and non-portfolio cases accepted from 125% ICR
- HMOs acceptable up to six bedrooms
- Unlimited director dependant shareholders under the age of 21
- Top slicing available across entire buy to let range, including portfolios
To be in the know for your customers, take a look at our SPV factsheet for all of the details.
Alternatively, to speak with a member of the Precise Mortgages sales team, call our dedicated support service on 0800 116 4385.
2 BVA BDRC Landlords Panel Report Q3 2022 (slide 42)
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