By the end of this guide, you will be able to:
- understand what limited company buy-to-let mortgages are and how they differ from personal name buy-to-let
- explain the potential tax benefits and drawbacks of using a limited company
- identify key lender criteria for limited company buy-to-let mortgages
- advise clients on when this structure is suitable and when it might not be
What is a limited company buy-to-let mortgage?
A limited company buy-to-let mortgage is a specialist mortgage used to purchase or remortgage a rental property through a limited company structure. Most lenders will only offer these mortgages if the company is set up as a Special Purpose Vehicle (SPV) – typically registered under SIC codes like 68100 (buying and selling of own real estate) or 68209 (other letting and operating of own or leased real estate).
This type of mortgage differs from a personal name buy-to-let in several ways, including how affordability is assessed, how the income is taxed, and how the property is held.
Why landlords use limited companies
There are several reasons why more landlords are choosing to invest through limited companies:
- mortgage interest tax relief – Companies can fully offset mortgage interest against rental income, whereas individual landlords cannot.
- corporation tax rates – Profits within a limited company are typically taxed at 25% or lower, compared to higher personal tax rates.
- retained profit flexibility – Landlords can leave profits within the company for reinvestment without triggering personal tax.
- inheritance tax planning – Some landlords use company structures to help with estate planning, though advice from a tax professional is essential.
- limited liability – Company directors have legal separation from the company, offering a degree of protection.
Potential drawbacks of limited company structures
While there are advantages, there are also some potential downsides that brokers should highlight to clients:
- fewer lenders – Not all lenders offer limited company buy-to-let products, reducing choice and potentially increasing costs.
- higher interest rates – Limited company mortgage rates are generally slightly higher than personal buy-to-let rates.
- additional admin – Running a limited company requires Companies House filings, annual accounts, and possibly professional accountancy services.
- capital gains tax implications – Transferring a property from personal ownership into a limited company may trigger capital gains and stamp duty liabilities.
- exit strategy limitations – Some lenders may restrict mortgage portability or impose early repayment charges on limited company products.
Key considerations for brokers
When advising clients on limited company buy-to-let mortgages, consider the following:
- tax advice is essential – Always recommend clients seek independent tax advice before setting up a company.
- experience levels – Some lenders require borrowers to have existing buy-to-let experience before applying through a company.
- loan-to-value restrictions – Limited company mortgages often have stricter LTV caps compared to personal BTLs.
- director guarantees – Most lenders will require personal guarantees from the directors of the company.
- future borrowing plans – Consider whether the client will want to grow a portfolio, and whether a company structure supports this efficiently.
When is a limited company buy-to-let suitable?
- for higher-rate taxpayers – Clients who pay 40% or 45% income tax could benefit from the corporation tax structure.
- for portfolio landlords – Those with multiple properties may prefer the tax efficiency and administrative clarity of company ownership.
- for long-term investors – Clients who plan to reinvest profits rather than draw income immediately can benefit from retained earnings.
- for landlords seeking estate planning options – Company ownership may support certain inheritance tax strategies.
When is a limited company buy-to-let not suitable?
- for basic-rate taxpayers – If a client is only paying 20% income tax, the benefit of using a company may be minimal.
- for small-scale landlords – Those with one or two properties might find the cost and admin of company ownership outweigh the benefits.
- for clients needing access to rental income – Withdrawing profits from a company can trigger dividend tax, reducing overall savings.
- for remortgages from personal name – Transferring properties into a company usually involves stamp duty and CGT charges.
Conclusion
Limited company buy-to-let mortgages offer many benefits, particularly for higher-rate taxpayers and portfolio landlords, but they are not the right fit for everyone. As a broker, your role is to help clients navigate the tax implications, lending criteria, and long-term planning considerations of this structure.
At NBTLAE, we’re here to support you with the knowledge and tools to help your clients thrive in the evolving buy-to-let market. Join us at the National Buy to Let Adviser Event this June to learn more and connect with lenders and peers from across the industry.
