A limited company mortgage is a type of mortgage that is taken out by a limited company to purchase a buy-to-let property. This means that the ownership of the property is held by the company rather than an individual. A limited company that is set up for the sole purpose of buying, letting and selling property is known as a special purpose vehicle (SPV).

Many landlords choose to use a limited company mortgage for their buy-to-let properties because of the potential tax benefits and access to specialist finance that may not be available with personal purchases. However, there are also some drawbacks and challenges that need to be considered before deciding to go for this option.

Benefits of a limited company mortgage

One of the main benefits of a limited company mortgage is that it can reduce the tax liability for landlords. This is because the company pays corporation tax on its profits, which is currently 19% in the UK, instead of income tax, which can be up to 45% for higher earners.

Additionally, the company can claim tax relief on the interest payments and other expenses related to the mortgage, such as maintenance costs, fees and insurance. This means that more of the rental income can be retained by the company or reinvested into new properties.

Another benefit of a limited company mortgage is that it can offer more flexibility and protection for landlords. For example, the company can have multiple directors or shareholders who can share the ownership and management of the properties. This can make it easier to transfer or sell the properties in the future, as well as protect the personal assets of the landlords in case of any legal issues or claims.

Furthermore, a limited company mortgage can open up more financing options for landlords who want to expand their portfolio. Some lenders offer specialist products and rates for limited companies that may not be available for individuals. These products may have higher loan-to-value ratios, lower fees or longer terms than standard buy-to-let mortgages.

Disadvantages of a limited company mortgage

One of the main disadvantages of a limited company mortgage is that it can be more costly and complicated to set up and maintain than a personal mortgage. For instance, landlords need to pay £12 to register their SPV with Companies House and file annual accounts and tax returns. They may also need to hire an accountant or solicitor to help them with the legal and financial aspects of running a company.

Another disadvantage of a limited company mortgage is that it can limit the choice and availability of lenders and products. Not all lenders offer mortgages for limited companies, and those who do may have stricter criteria and higher rates than for individuals. Landlords may also face additional fees and charges from lenders, such as arrangement fees, valuation fees and legal fees.

A third disadvantage of a limited company mortgage is that it can affect the personal income and credit rating of the landlords. This is because the rental income received by the company is not counted as personal income, which may reduce the borrowing capacity of the landlords for other purposes. Moreover, if the company defaults on its mortgage payments, this may damage the credit score of the directors or shareholders who have provided personal guarantees.

Conclusion

A limited company mortgage can be a viable option for landlords who want to reduce their tax liability and access specialist finance for their buy-to-let properties. However, it also comes with some challenges and risks that need to be weighed against the benefits. Landlords should seek professional advice from an independent financial adviser or broker before deciding whether a limited company mortgage is suitable for their circumstances.

If you are interested in a limited company buy to let mortgage contact us today on 0151 662 0188 or email [email protected].