What Is A Buy-To-Let Mortgage For Limited Companies?

September 24, 2022

If you’re looking to expand or acquire a buy-to-let portfolio of up to three properties, then you may find a buy-to-let mortgage for limited companies meets your needs the best. Here’s a look at the features and benefits of this type of mortgage.

What is a limited company buy-to-let mortgage?

These products are designed to allow a landlord to take out a mortgage through a limited company, rather than in their own name. They may also be suitable for other types of collective property purchase, where individuals want to minimise the personal financial risks.

This type of mortgage is only available from a selective number of lenders, so most people will contact a mortgage advisor to help them find the most suitable deal.

What are the advantages of this type of mortgage?

The main reason people form a limited company for a buy-to-let (BTL) mortgage is to reduce the amount of income tax they pay. This is because rental income is added to overall personal income which must be declared to HMRC.

If the additional rental income pushes a landlord into a higher tax bracket, it may be more cost effective to form a limited company, so that rental income can be excluded from personal income. This has become more common practice since 2017, when the tax rules on BTL mortgages were changed.

Prior to this date, landlords in all tax brackets could claim relief for allowable expenses, but since 2017, this only applies to the basic rate of income tax.

Landlords will still need to pay corporation tax on their rental income through the limited company, but this is a flat rate of 19% until April 2023. After this date, (at the time of writing) it will change to a variable rate of between 19% and 25%.

Small businesses with profits of less than £50,000 will still pay 19%, and those with profits of £50,000 to £250,000 will pay an adjusted amount between 19% and 25%. Any income above these bands will pay the full 25%.

What are the eligibility criteria?

There are no fixed criteria for a limited company buy-to-let mortgage, and it will vary between lenders. However, there are a few points which the majority will consider when making a decision.

Firstly, the applicant should be remortgaging or taking out a new mortgage on a residential rental portfolio of no more than three properties. They will also need to have formed a limited company, or limited liability partnership.

The rental income will usually need to be at least 125% of the mortgage payment. Some lenders also specify a minimum personal income for the majority shareholder, usually upwards of £25,000.

Some lenders will consider applicants with adverse credit records, depending on the individual circumstances of the applicant. If you do have any issues which appear on your credit report, it’s best to seek assistance from a specialist mortgage broker, who will have a good knowledge of the market, and know which lenders to approach.

If you are looking for buy to let mortgage advice in the UK, please get in touch today.

Your home may be repossessed if you do not keep up with your mortgage repayments.

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