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Limited Company
Buy-to-Let Mortgages

What is a limited company buy-to-let?

 

A limited company buy-to-let mortgage enables a company to obtain a mortgage to purchase a rental property. Purchasing a property via a limited company offers tax benefits, as rental earnings and profits are subject to corporation tax rather than personal income tax. But there are various other advantages and disadvantages to consider when choosing this type of mortgage.

Are limited company buy-to-let’s more tax efficient?

 

Yes, limited company buy-to-lets can be more tax-efficient than owning a rental property as a private landlord. There are various reasons for this:

 

  • Corporation Tax: Limited companies are taxed on their profits at the corporation tax rate, which is currently lower than the income tax rate for higher earners.  Rental profits, after deducting finance costs such as mortgage interest, are currently subject to corporation tax at 19%. Small companies with profits of £50,000 or less will continue to pay tax at 19% from April 2023. The main rate of corporation tax is rising to 25% from April 2023 on taxable profits over £250,000. For limited companies with profits between £50,000 and £250,000 they will have a marginal rate which can be claim for via the gov.uk website: https://www.gov.uk/guidance/corporation-tax-marginal-relief

  • Mortgage Interest Relief: Unlike private landlords, Limited companies can offset all their mortgage interest, and other finance costs (such as mortgage arrangement fees) against profits from their rental income before paying corporation tax. This means that while individual landlords are effectively taxed on turnover, corporate landlords are taxed on profit.

  • Expenses: Limited companies are able to deduct certain expenses from rental income. Deductible expenses varies' but can include mortgage interest, property management fees, repairs and maintenance costs, insurance premiums, and utility bills.

  • Inheritance Tax: If you are planning to pass your rental property to a beneficiary, owning the property via a limited company can potentially make the transfer process easier without incurring inheritance tax.

BTL Calculator

The below calculator will give you a guide as to the amount that can be borrowed based on a given monthly rental

What are the advantages of purchasing a buy-to-let property through a limited company?

 

Purchasing a buy-to-let property through a limited company, provides the ability to reinvest profits and expand your portfolio, but also offers other advantages, such as:

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  • Limited Liability: One advantage is limited liability protection, ensuring that shareholders' personal assets are safeguarded in case of the company's financial difficulties or bankruptcy.

  • Improved rental coverage stress tests: Stress tests on limited company buy-to-let mortgages can be less strict than those applied to regular buy-to-let mortgages. Due to limited companies not being subject to the same restrictions on mortgage interest tax relief that individuals face, making it easier to borrow more on a limited company buy-to-let property.

  • Tax Planning: Owning a rental property through a limited company provides more flexibility for tax planning, as the company can deduct certain expenses from its taxable income, as explained above.

  • Ownership: A limited company structure can make it easier to transfer ownership of the property, which can be beneficial if you want to pass the property to family members or sell it to another investor.

What are the disadvantages of purchasing a buy-to-Let property through a limited company?

 

Like anything, purchasing a buy-to-let property through a limited company can include some disadvantages, such as:

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  • Higher Initial Costs: Setting up a limited company can be more expensive than purchasing a property as an individual, due to potential legal and accounting fees.

  • Limited Borrowing Options: Lenders often view limited companies as higher risk, which therefore can restrict the number of lenders offering limited company mortgage products. Interest rates on these types of mortgages may also be higher.

  • Complex Tax Rules: Although there can be tax advantages to buying a buy-to-let property through a limited company, these tax regulations can be complex and may require the assistance of professional tax advice.

  • Capital Gains Tax: There are some differences in how Capital Gains Tax (CGT) is calculated and paid for limited companies compared to individual landlords. One key difference is that limited companies are not entitled to a personal CGT allowance (currently £12,300 for individuals). Therefore, all gains made on the sale of a buy-to-let property owned by a limited company are subject to CGT at the current rate. Additionally, limited companies cannot benefit from the lower rates of CGT that apply to the sale of assets held for longer periods by individuals.

How can Knightwood Mortgages help?

 

We can help you secure the most competitive limited company buy-to-let mortgage rates currently available on the market. Additionally, we offer guidance on selecting the most suitable mortgage type for your specific needs and walk you through the necessary steps to prepare for your property purchase.

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At Knightwood Mortgages, we're dedicated to making the limited company buy to let application process as easy as possible. Contact us to find a suitable mortgage deal for a limited company buy-to-let by emailing services@knightwoodmortgages.co.uk or calling 03301 336045.

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03301 336045

12 High Street, Lyndhurst, SO43 7BD

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Knightwood Mortgages is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only. Knightwood Mortgage Ltd Registered address: 12 High Street, Lyndhurst, SO43 7BD, England, United Kingdom under number 13517392. 

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