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Why form a Limited Company to hold a BTL Property?

Properties held in a limited company are viewed as a business and as such all expenses can be written off for tax purposes.

Limited companies pay Corporation Tax whilst individuals pay Income Tax. As such companies are not affected by the changes the treasury made to tax relief on finance costs for personal BTL borrowers.

This doesn’t mean to say that everyone should form a company to hold property as there are other considerations, not least the fact that interest rates for companies are notably higher than for personal BTL borrowers.
As everyone’s circumstances are different, we strongly advise all investors speak with a tax advisor who will look at your circumstances and advice you on the most cost-effective way to proceed.

Which Types of Limited Companies Can Get a Mortgage?

1. Special Purpose Vehicle (SPV)

A special purpose vehicle is a company that was set up to trade only in rental property. They typically have one of the following Standard Industry Classification (SIC) codes registered at companies house.

68100Buying & sell own real estate
68201Renting & operating of housing association real estate
68209Other letting & operating of own or leased real estate
68320Management of real estate on a fee or contract basis

2. Trading Limited Company

Most mainstream BTL lenders will only lend to an SPV, however, if you do hold property in a company that already runs as a trading business in another field it is still possible to obtain a mortgage with a specialist or commercial lender.

Jordan Lynch have excellent relationships with all the UK’s leading specialist and commercial lenders and can negotiate bespoke terms on your behalf.

Why is a Personal Guarantee Required?

As companies have limited liabilities any debts incurred by a company are not directly the legal liabilities of the shareholders/directors.

Lenders require a personal guarantee (PG) as this gives them reassurance that in the event of a default and the company being unable to meet its financial obligations they can pursue any unpaid amounts from the shareholders/directors that have provided the PG. In practise this would mean that should the lender have to repossess the property and after sale, they are still owed money, the individual offering the PG will be liable for that balance.

Can I Transfer a Personally Owned BTL into a Limited Company?

Yes, but the transaction must be treated as a sale by you to your company triggering Capital Gains Tax (CGT) on the sale as well as Stamp Duty (SDLT) including the 3% surcharge on the purchase by the Limited Company. On top of this there would also be legal fees and mortgage lender / broker fees.

We highly recommend that anyone looking to transfer property to a new SPV seeks specialist tax advice that evaluates all the pros and cons. It’s also essential that aside from looking at the tax angles that the costs of running a company as well as the higher interest rates that are charged relative to personal BTL’s are factored in.