Despite their advantages, buy to let mortgages for limited companies also come with some disadvantages. One significant drawback is the complexity and administrative burden of running a limited company, which includes additional accounting and legal requirements.
Setting up and maintaining a company can involve extra costs and paperwork. Moreover, mortgage rates for limited companies may be higher than those for individual borrowers, reducing the potential return on investment. Additionally, it can be more challenging to access financing as a limited company, as lenders may require higher deposits and stricter underwriting criteria.
Lastly, the ability to offset mortgage interest against rental income has been reduced for limited companies due to changes in tax rules. Consequently, while there are benefits, investors should consider the downsides of using this structure for their buy to let investments. Let's discuss these in further detail.
Administrative tasks
An accountant can assist you to meet business obligations by dealing with HMRC, completing annual returns, and company accounts.
No Capital Gains Tax (CGT ) when a company sells a property
The sale of a property by a corporation is exempt from personal capital gains tax, but the 2023–24 CGT allowance for individuals selling real estate is £12,300, or £6,150 if the asset is taken out of or put into a trust.
Property transfer costs
You will have to pay legal fees, higher rates, stamp duty land tax, legal costs and perhaps capital gains tax if you want to transfer existing properties into the company. Transferring properties you already own into a Limited Company is currently not recommended since the costs would be too high.
Increased mortgage rates
Due to the additional work involved, the majority of mortgage lenders, with a few exceptions, charge higher interest rates and fees for limited companies than they do for personal names. We can assist you in determining what is most practical for you.
Decreased lender choice
Buy to Let Mortgages for Limited Companies are available from fewer lenders, but that number is constantly rising, bringing with it a greater range of products and improved lending standards.
Increased legal costs
Due to the additional work required, such as registering mortgages at Companies House and making sure Money Laundering Regulations are followed, conveyancers frequently charge a premium for Limited Companies.
However, these should be weighed against any potential tax or capital gains liability savings from operating as a limited company as opposed to an individual.
Personal Guarantees
Company Buy to Lets will require a “Personal Guarantee” which is you agreeing to be liable for the mortgage debt of the company.
Privacy
You, your accountant, and HMRC are the only parties to your tax records. Although accounts don't have to be full disclosure accounts and might instead be what are known as abbreviated accounts, limited companies are required to disclose their financial statements, which are available online at Companies House.
Releasing equity
Private landlords appreciate having the freedom to use the equity released from a property anyway they see fit, especially in places where there has been strong capital growth. You can still discharge equity from limited company assets, but the money often belongs to the company for reinvestment. If you use those funds for personal purposes, you will be taxed accordingly as if it were income.
>>LOOKING TO PURCHASE A BUY TO LET THROUGH A LIMITED COMPANY? <<
Speak to one of our mortgage advisers today to discuss your options.
Cedar Crest Ltd – telephone UK T: +44 (0) 203 883 1017,
HK T: +852 6645 4462 – email info@cedar-crest.co.uk
Your home may be repossessed if you do not keep up with repayments.
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