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WHAT IS A PORTFOLIO MORTGAGE?
There are certain benefits to taking out a buy-to-let through a limited company. We’ll explain how they differ from traditional buy-to-lets, what mortgage options you have and how to set them up, so you can make the most out of your investment.
IMPROVED TAX EFFICIENCIES AND PLANNING
We’ll explain why.
You pay tax on rental income. If you own a buy-to-let in your name, the rental income you receive is added to your personal income. Your overall income amount will then determine your Income Tax band. This means that your rental income could push you over a new threshold, leaving you liable to higher taxes. You can find out more about landlord taxes in our guide: Rental Income and Other Landlord Taxes.
Conversely, rental profits on properties held in a limited company are not taxed according to personal Income Tax rates. Instead, they’re charged Corporation Tax which stands at 19% (2019-20); it has no upper tiers like for Income Tax.
You should always speak to a qualified accountant about any potential tax benefits or liabilities.
RESTRICTION IN TAX RELIEF
This is not the case for buy-to-lets owned in a limited company. You can still deduct these kinds of expenses from the income on limited company buy-to-lets as they’re considered business expenses.
Again, we recommend that you speak to an accountant about the tax benefits of limited company owned buy-to-lets verses personal ownership.
THE ADVANTAGES OF BUY-TO-LET MORTGAGES FOR LIMITED COMPANIES
Simple and Quick
THE DISADVANTAGES OF PURCHASING A BUY-TO-LET THROUGH A LIMITED COMPANY
Higher Mortgage Rates
No Capital Gains Tax Allowance
You don’t pay CGT on buy-to-lets owned by limited companies, you pay Corporation Tax. This means you’re not entitled to the allowance. Whether it works out better for you financially depends on how much profit you gain from the sale of your buy-to-let.
The Additional Costs of Running a Limited Company
These costs and tasks tend to be:
- The preparation of accounts – which is a legal requirement
- Corporation Tax
- Filing at Companies House
- Legal fees
- Annual auditing – if applicable
Accountants may also charge a higher fee when preparing accounts for Companies House.
A Reduction in the Choice of Lenders and Availability of Mortgages
SETTING UP AS A LIMITED COMPANY FOR BUY-TO-LET PURCHASES
Here are the key things you’ll need when registering your limited company.
Company Name and Address
- You’ll need to create a unique company name –
- The address can be your residential address
Second Charge Mortgages for Portfolio Landlords
LENDING CRITERIA CHANGES
Limited Company Buy-to-Let Lenders
Due to all the different the buy-to-let tax changes that have been enforced since 2016, more people are purchasing buy-to-lets through limited companies. This increase in demand has resulted in an increase in the number of buy-to-let lenders that will accept applications from limited companies. The options and choices for landlords using limited companies have never been better.
PORTFOLIO LANDLORD INSURANCE
Specialist landlord insurance will be more likely to give you the cover you actually need. If you’re constantly looking for new investments, you’ll probably have many properties to insure. A regular landlord insurance policy may only allow you to insure one property, whereas a landlord portfolio insurance policy will allow you to insure multiple properties under one policy. A portfolio policy gives you flexibility and lets you add properties as you go.