BTL Mortgages personal or Ltd Company?

The tax year 2016/17 was the last year that higher and additional rate income taxpaying landlords could claim full relief on the costs incurred when taking out a Buy to Let mortgage.

If you're a residential landlord, the main finance cost is the interest you pay on the BTL mortgage but it may also include interest on loans to buy furnishings and any associated fees for taking the mortgage out, such as:

  • Lender arrangement fees
  • Broker fees
  • Lender’s valuation of the property
  • Legal fees related to the mortgage 

** disclaimer: do make sure you take professional advice or ask your tax office for clarification.

Following a 4 year phase in period, and now in less than a year's time, from 6 April 2020, if you are a residential landlord and you own your rental property personally, you will not be able to deduct the finance costs from your property income when calculating your taxable profit. Instead, you will receive a basic rate reduction on the finance costs from your income tax liability.

We review each case individually for our landlord clients and work with them to review whether owning their rental properties in a limited company is a more tax-efficient option because they pay Corporation Tax not Income Tax and so the relief restrictions don’t apply.

Corporation Tax is currently 19% (tax year 2018/19). In the tax year 2020/21 it will be 17%.

It is clear that investing through a limited company can save a lot of tax. However, the profits and cash held in the limited company will belong to the limited company and there will be further tax payment in order to extract the profits into the shareholders hands. 

In most cases there will be tax savings (compared with personal ownership) but you will need a tax specialist to advise you on your own circumstances. If you are currently a basic rate taxpayer, you will possibly find that a further BTL pushes you into the higher rate tax bracket, so you still need to consider this option.  

it is quick and easy to set up your own SPV Ltd company online with the HMRC website and it can be an existing SPV or brand new, but lenders will limit your options if you want to borrow on more complex properties like HMOs, multi unit freehold flats, mixed use or commercial premises.

Lenders usually ask for a portfolio breakdown,(we can supply a template on request), maximum 4 directors per Ltd company.

Setting up an SPV Limited Company

  • BTL lenders who offer mortgages to limited companies usually require the limited company to be an SPV (Special Purpose Vehicle).
  • The SPV limited company is set up just to hold property and do nothing else. Btl Lenders offering mortgages to corporate vehicles mostly prefer SPVs to trading limited companies because they are easier and quicker to understand and underwrite.

    You can either ask your accountant or go online and set the company yourself, this costs about £15. If you buy one online, it will take just a few minutes and as long as you intend to use the company just for property letting.

    For those who already have companies and are wondering whether this would meet the SPV criteria, here is what the lenders like to see:
  •         • SIC code for letting property
            • No sign of any revenue through the company of anything other than letting property

    How do you get a SIC code?
    You will need a SIC code when filing the SPV’s Annual Return with Companies. Most investors require a SIC code from Section L: Real estate activities.

  • Below is the link to set up your SPV with a list of codes you might like to include.

SIC code 68209 for the letting and operating of owned or leased real estate

SIC code 68100 for buying and selling of own real estate

SIC code 68209 for managing your own companies

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