Buy To Let Mortgages For Limited Companies Explained

Many landlords and property investors set up a limited company to enjoy lower tax burdens and other benefits. But what happens if you require a mortgage for a buy to let property? Here, I will detail everything you need to know about a limited company buy to let mortgage from how they work, what the benefits and drawbacks are of having a buy to let mortgage as a limited company, and more.

Table of Contents

What is a Buy To Let Mortgage?
How Do Buy To Let Mortgages Work for Limited Companies?
How Many Buy To Let Mortgages Can a Limited Company Have?
Pros and Cons for a Limited Company Buy To Let Mortgage

What is a Buy To Let Mortgage?

A buy-to-let mortgage, or BTL mortgage allows the owner of a property to buy a house for the purpose of renting it out to tenants. BTL mortgages are very similar to standard mortgages, as they are provided by banks and the property owner makes monthly repayments. The main difference with BTL mortgages is that most of them allow the owner to only pay back the monthly interest on the mortgage for a fixed period. The full amount is paid back at the end of the prearranged mortgage term, often from selling the property. They normally require a larger deposit than regular homeowner mortgages, but otherwise can be quite lucrative for property investors.

How Do Buy To Let Mortgages Work for Limited Companies?

Limited companies can access buy-to-let mortgages too. Limited company BTLs, also known as Special Purpose Vehicle (SPV) mortgages, allow buyers to purchase a property in the name of their company. An SPV is a legal entity, like a limited company, that is set up for a specific purpose, in this case buying a property. Most BTL mortgages, particularly those for limited companies have a slightly higher interest rate and require a larger deposit, usually 25 – 45% of the property’s sale price. The tax benefits of buying property through a limited company can outweigh these higher costs. As with all mortgage products, it’s best to shop around to find the best deals possible.

How Many Buy To Let Mortgages Can a Limited Company Have?

There isn’t a particular limit to the amount of BTL mortgages a limited company can have, but a mortgage lender may set limits as to how much they will lend the company. These limits are based on ‘exposure’, i.e. how much lending the bank is prepared to take on, and other factors including the location of the rental properties, how much deposit the borrower is prepared to offer, their financial situation, level of experience and more. There’s nothing to stop you from having multiple BTL mortgages with several lenders, although some lenders may be unwilling to offer a BTL mortgage if you have several others from other lenders.

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Pros and Cons for a Limited Company Buy To Let Mortgage

There are benefits and drawbacks to a limited company buy to let mortgage – here are a few that you should be aware of.

Pros of BTL Mortgages for Limited Companies

A limited company can offset 100% of the mortgage interest against their tax bill. Landlords with a BTL mortgage in their own name can only offset 20% of their mortgage interest against taxes.
The usual tax benefits of owning property through a limited company still apply, i.e. paying corporation tax instead of income tax.
The property is in the company’s name rather than yours, and any debts or legal liabilities it incurs are not against you personally. Of course, you still may be personally responsible for the mortgage payments, but the company is considered an entity separate from you.
Property owned through a limited company is subject to lower inheritance tax rates than personally owned property. Beneficiaries can claim Business Relief of up to 100% on some of an estate’s business assets – see more details about this on the government’s website.

Cons of BTL Mortgages for Limited Companies

Buy-to-let mortgages for limited companies often come with a higher interest rate and a larger deposit is required when compared to an individual applying for a BTL mortgage.
You will still pay income tax when you take earnings from the company. Limited companies pay less in corporation tax than higher-rate taxpayers, but you will still be liable for taxes on your income through the company. An accountant specialising in property investment can advise you on how you can reduce your tax obligations.
Limited companies cannot benefit from Capital Gains Tax (CGT) allowance on the profits from selling a property like individuals can.
Suppose you want to transfer ownership of a property from an individual to a limited company. In that case, this can incur legal fees, Stamp Duty Land Tax and potentially Capital Gains Tax. It’s worth considering the potential benefits of this, depending on your specific situation, and consulting with a specialist accountant or tax adviser before doing so.
There is less choice of mortgage products for limited companies. A few lenders do specialise in a limited company buy to let mortgage but in general you will find fewer mortgages available.

Understanding how BTL mortgages work for limited companies, including the potential tax benefits and drawbacks, is essential for landlords and property investors. While there are several benefits, it’s important to weigh these up against the higher interest rates and higher LTVs (loan-to-value ratio) of these types of mortgages, as well as the extra admin work of managing property through a limited company. Take the time to consider your own investment goals and level of experience as well as your current financial situation. Starting a limited company carries its own financial and legal consequences so be sure to do thorough research on this first.

As always, seeking professional advice from an accountant or tax adviser who specialises in property investment can make sure you get the most from having a limited company buy to let mortgage, from choosing the best mortgage products to reducing your tax burden. This expert advice can help save you time and money, and help you build a lucrative and sustainable property investment portfolio.

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