As a landlord, you could invest in buy to let (BTL) properties through a limited company instead of in your own name. Here's how to find out if this could help you save money and pay less tax.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
It is a mortgage you can use to buy investment properties through a limited company instead of in your own name.
Buying a property through a limited company is now cheaper for some landlords, as the laws on buy to let taxation have made investing in property more expensive.
You can compare individual deals using our limited company buy to let mortgages comparison.
When you invest in property, the buy to let mortgage is usually in your own name.
One alternative is to buy investment properties through a limited company.
Technically, the company owns the properties, and the mortgage is taken out in the company's name.
You do this by setting up a special purpose vehicle (SPV) limited company, which is technically a small business set up in your name.
You pay money into the company, which is used as the deposit when you purchase properties. A limited company buy to let mortgage covers the rest of the property's price.
You need to set up the company before the mortgage begins. But you can apply for the mortgage before this, and there is no minimum time your limited company has to be trading for.
Could save you money in tax
Keep your own finances separate
Claim mortgage interest as a business expense
Initial setup costs
Extra paperwork and admin
Limited company BTL mortgages can be more expensive
Normal buy to let mortgages are taxed as part of your own personal income. This means you pay capital gains tax (CGT), and tax on the income you make from rent.
The advantage of a limited company buy to let is that you pay corporation tax instead, which can work out cheaper for some investors.
Corporation tax is charged at 18%, and companies can claim mortgage interest as a business expense. You still usually have to pay stamp duty on a limited company buy to let.
Below is an example of how much tax you'd pay and how much profit you could make from renting out a house with:
A normal buy to let mortgage
A limited company buy to let mortgage
This example assumes:
£12,000 annual rental income (£1,000 per month)
A £200,000 interest only mortgage
3% mortgage interest rate per annum fixed
You are a higher rate taxpayer
Corporation tax charged at 19%
No other fees or costs are taken into account — just tax, mortgage interest and rent
|Normal BTL||Limited company BTL|
|Mortgage interest||£6,000 (Mortgage balance x 3%)||£6,000 (Mortgage balance x 3%)|
|Taxable profit||£9,000 (Rental income minus half of the mortgage interest)||£9,000 (Rental income minus half of the mortgage interest)|
|Tax due*||£3,600 (Taxable profit x 40%)||£1,080 (Taxable profit x 18%)|
|Net profit||£2,400 (Rental income minus mortgage interest and tax due)||£4,920 (Rental income minus mortgage interest and tax due)|
*Your tax band depends on your individual financial circumstances.
They usually cost more than normal buy to let mortgages because:
Interest rates are sometimes higher for limited companies
Lenders sometimes charge higher arrangement fees to cover the extra paperwork
Some lenders make you get independent legal advice first
Keep your costs as low as possible by comparing mortgages and choosing the best deal.
You can only buy investment properties with a buy to let mortgage, not a normal residential mortgage. But if you want to buy a property through an SPV, some buy to let mortgages aren't suitable — you have to find one that accepts limited companies.
You can find a mortgage using our limited company BTL comparison. All the deals can be used for limited company property investment.
When buy to let mortgage lenders decide if they can offer you a mortgage for the amount you want, they look at:
If you can afford the repayments
If the rent you'll receive is high enough
If the property is worth the sale price you agreed with the seller
As you'll be registered as director of the limited company, the lender checks your own income, credit history and how you handle your finances. This is the same process as when you get a mortgage for your own home, but lenders can often let you borrow more for buy to let.
The rent you'll be able to charge on the property usually has to be around 125% of the monthly payment on the mortgage. For example, if your mortgage costs £600 per month, you would need to be able to charge £750 in rent.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.