Buy to Let Limited Company Mortgages

What is a Buy to Let Limited Company Mortgage

Key differences between Personal and Limited Company Buy to Let Mortgages

Pros of a Limited Company Buy to Let Mortgage

Cons of a Limited Company Buy to Let Mortgage

A Buy to Let (BTL) Limited (Ltd) Company Mortgage is simply a Mortgage which is secured and held against a Property which is owned within a Ltd Company.

Unlike personal Buy to Let Mortgages, the Mortgage is issued to the company rather than an individual, allowing landlords to benefit from the tax efficiencies and asset protection offered by Limited Companies (although many Ltd Company Mortgages require a personal guarantee).

The primary reason Landlords are moving over to a Ltd Company structure is due to changes in Legislation, such as the reduction in mortgage interest tax relief for individual landlords.

A limited company structure can offer significant tax advantages, particularly for higher-rate taxpayers and provides a more scalable route for managing multiple properties and growing the property portfolio.

1. Tax Efficiency: Corporation tax will be lower than what Higher and Additional rate tax payers would pay.

You can fully deduct Mortgage interest costs and other expenses, which personal BTL’s do not allow.

You can retain profits with the Ltd Company and reinvest this in additional property purchases making it easier to scale your portfolio

2. Can Retain Profits for Reinvestment: Profits earned within a limited company can be retained and reinvested into additional properties, helping you grow your portfolio more efficiently.

This is especially useful if you’re planning to expand your property portfolio over time.

By reinvesting profits, you can compound your returns and accelerate your wealth-building strategy.

3. Potential Protection from Personal Liability: Operating as a limited company provides a layer of protection between your personal finances and your property investments.

If the company faces financial difficulties, your personal assets (such as your home or savings) are generally protected.

4. Better for Future Proofing your Portfolio:  Passing on a property portfolio held within a limited company can be more straightforward from an inheritance tax (IHT) perspective.

Shares in the company can be transferred to family members or beneficiaries, potentially reducing the IHT burden compared to transferring properties held in your personal name.

This makes limited company structures an attractive option for long-term wealth preservation and succession planning.

1. Higher Mortgage Costs: Limited company mortgages often come with higher interest rates and fees compared to personal BTL mortgages due to the perceived increased risk for Lenders.  

2. Limited Lender Options: Although the market for limited company BTL mortgages is growing, there are still fewer lenders offering these products compared to personal BTL mortgages.

This can limit your options and make it much harder to obtain a Mortgage, particularly if your case differs to the norm. I.e. you have a Bad Credit history.

3. Higher Set Up and Ongoing Costs: Typically Accountants will charge more to set up and maintain a Ltd Company.

In addition, Solicitors may also charge more when Conveyancing a Ltd Company Mortgage.

4. Double Taxation: Although corporation tax rates are generally lower than income tax rates, you may face double taxation when extracting profits from the company.

For example, profits are taxed at the corporate level, and then dividends paid to shareholders are taxed again at the personal level. This can erode your overall returns.

5. Personal Guarantees: Even though a limited company provides a layer of protection from personal liability, many lenders will require directors to provide personal guarantees for the mortgage.

This means you could still be personally liable if the company defaults on the loan, potentially putting your personal assets at risk.

6. Less Beneficial for Smaller Portfolios: If you are a basic rate taxpayer and/or only own one or two properties, the costs and administrative burden of running a limited company may outweigh the benefits.

The tax savings and other advantages are often more significant for landlords with larger portfolios, making limited company structures less attractive for smaller-scale investors.

7. Changing Regulations: The tax and regulatory landscape for limited companies is subject to change.

For example, recent increases in corporation tax rates (up to 25% for profits over £250,000) have reduced some of the tax advantages.

Future changes to tax rules or other legislation could further impact the viability of limited company BTL investments.

You’ll need to set up using the Right Business Structure: as a Special Purpose Vehicle (SPV)

Once you have chosen your business name, you’ll need to set up your Limited Company with Companies House.

To do this, all you have to do is select one of the following Standard Industrial Classification (SIC) codes when setting up your new Ltd Company:

• 68100 – Buying & sell own real estate
• 68209 – Other letting & operating of own or leased real estate
• 68320 – Management of real estate on a fee or contract basis

This tells the Mortgage Lender that you are now set up as a SPV (Special Purpose Vehicle): A company set up solely for property investment, which is required by most Mortgage Lenders.

This is important as it is different to setting up a traditional Trading Limited Company: A company engaged in other typical business activities.

Corporation Tax vs. Income Tax

Limited Company: Profits from rental income are subject to Corporation Tax, which is currently 19% to 25% (as of 2023/24, depending on profit levels). This is often lower than the Income Tax rates for higher and additional-rate taxpayers (40% or 45%).

Personal Ownership: Rental income is taxed at your marginal Income Tax rate (20%, 40%, or 45%), which can be significantly higher than Corporation Tax.

Mortgage Interest Tax Relief

Limited Company: Companies can deduct 100% of mortgage interest and other finance costs as a business expense, reducing taxable profits.
Personal Ownership: Since April 2020, landlords can only claim a 20% tax credit on mortgage interest, which is less beneficial for higher-rate taxpayers.

Retained Profits

Limited Company: After paying Corporation Tax, profits can be retained within the company or distributed to shareholders as dividends. Dividends are taxed at lower rates than Income Tax:
Basic rate: 8.75%
Higher rate: 33.75%
Additional rate: 39.35%
Personal Ownership: All rental profits are taxed as income, with no option to retain profits or benefit from dividend tax rates.

Inheritance Tax (IHT) Planning

Limited Company: Shares in a company can be passed on more efficiently, potentially reducing Inheritance Tax liability through Business Relief or other planning strategies.
Personal Ownership: Properties held personally are subject to IHT at 40% on the value of the property above the nil-rate band (currently £325,000).

Capital Gains Tax (CGT)

Limited Company: If you sell the property, the gain is subject to Corporation Tax (19% to 25%) rather than CGT. Companies also have more flexibility to reinvest profits to defer tax.
Personal Ownership: CGT is charged at 18% or 28 (depending on your Income Tax band), and you may only benefit from the annual CGT allowance (£6,000 in 2023/24, reducing to £3,000 in 2024/25).

Expense Deductions

Limited Company: A wider range of expenses can be deducted, including:
Maintenance and repair costs
Travel expenses related to the property
Renovation costs

Personal Ownership: Some expenses are deductible, but the rules are stricter, and relief for finance costs is limited.

Minimum Deposit Requirements

Most lenders require a minimum deposit 20-25% of the property value.

Credit Score and Financial History

Both the company and its directors must demonstrate strong creditworthiness.

Experience as a Landlord

Most Lenders will require you to be a homeowner already, but most will accept First Time Landlords (i.e. no experience of being a Landlord).

Company Financials and Trading History

Whilst not usually necessary, some Lenders may require evidence of the company’s financial stability and trading history.

Minimum Income Requirements

Some Lenders will require you to have another form of income in addition to Rental income, which will usually need to be a minimum of between £15,000-£25,000.

Some Lenders however don’t require you to have any other income.

Arrangement Fees and Broker Fees

These can range from 1-2% of the loan amount.

Valuation and Legal Fees

Costs for property valuation and legal work are typically higher for limited companies.

Annual Accounting and Tax Return Costs

Budget for professional fees to ensure compliance with tax and reporting requirements.

Ongoing Maintenance and Management Expenses

Include property maintenance, letting agent fees, and insurance in any forecasting you do.

Can I Transfer Existing Properties to a Limited Company?

Yes, but this may trigger capital gains tax and SDLT liabilities.

What Happens if My Limited Company Makes a Loss?

Losses can be carried forward to offset future profits.

Can I Use a Limited Company for HMO or Multi-Unit Properties?

Yes, but lenders may have specific criteria for these property types.

How Does a Limited Company Affect My Personal Credit Score?

The company’s finances are separate, but personal guarantees may impact your credit.

If you haven’t already, speak to an Accountant and a Mortgage Advisor to establish whether holding your Property in a Ltd Company is going to work out best for you. 

The Accountant can work out the taxation benefits, and the Mortgage Advisor can show you the difference in costs between a Ltd Company and Personal BTL Mortgage.

We can help put you in touch with a Mortgage Advisor which specialises in this.

Please click the Contact us button at the top of the page if you would like to speak to an Advisor.