Portfolio Landlord Mortgages

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WHAT IS A PORTFOLIO MORTGAGE?

This guide has been produced for information purposes only. As a mortgage broker, we’re not able to offer tax advice.
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

Holding property in a limited company may offer some tax benefits to certain people – e.g. some higher rate taxpayers find it to be more tax-efficient than personally-owned buy-to-let properties.
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

The tax relief private landlords can claim is being gradually restricted over a 4 year period which commenced in April 2017. Landlords can no longer automatically deduct finance costs, like mortgage interest, from rental income.
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
Setting up a limited company for buy-to-let takes just 15 minutes and can be done easily online. Nonetheless, we recommend you seek advice from an accountant or legal advisor before making any big decisions. See Setting Up as a Limited Company for Buy-to-Let Purchases below for some extra information.
Future Planning
It’s simpler to transfer a limited company to another owner than a privately held property. The property does not change owners but remains under the company’s ownership, which could protect the transaction from Stamp Duty, Inheritance Tax and Capital Gains Tax (CGT). This is useful if you plan to pass your business onto family in the future.
Portfolio Expansion
Retaining profits within the company helps to protect you from tax liabilities because you’re not making a “capital gain”; your business is making a profit. This could help you use more of your earnings to expand your property portfolio faster.
Limited Liability
If you own a limited liability company then you’re not personally liable for any debts held by the company, including those on buy-to-lets. However, bear in mind that you’re not absolved of the personal guarantees often required by your mortgage lender.

THE DISADVANTAGES OF PURCHASING A BUY-TO-LET THROUGH A LIMITED COMPANY

Higher Mortgage Rates
Most lenders charge slightly higher interest rates and fees to limited companies compared to individual buy-to-let mortgages.
No Capital Gains Tax Allowance
When a limited company sells a property, no Capital Gains Tax (CGT) Allowance is given. An individual who sells a buy-to-let receives a certain allowance – i.e. an amount they don’t pay CGT on. The allowance depends on the year they sold their property. If a private landlord sold their property within the 2018-2019 tax year they would receive an allowance of £11,700. If they sold their property within the 2019-2020 tax year, they would receive an allowance of £12,000. A private landlord would pay CGT on anything above the 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
You’ll have to factor in new costs and tasks when you set up 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
Not all buy-to-let lenders offer mortgages to limited companies and those that do tend to offer somewhat smaller product ranges.

SETTING UP AS A LIMITED COMPANY FOR BUY-TO-LET PURCHASES

Setting up a limited company is simple. You can register with Companies House online or by post and it costs from just £12.
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
Development Finance
If you’re planning to expand your portfolio by building a completely new property, renovating a dilapidated building or converting an existing one, development finance may be more suitable for you than a mortgage. We have a panel of handpicked development finance lenders, all of whom have something slightly different to offer a budding property developer. Through our network, we can construct finance packages for residential and commercial projects. We can source finance up to £25 million so no matter how large your development project is, we can find a provider willing to consider you.
Second Charge Mortgages for Portfolio Landlords
A second charge mortgage allows you to release equity in your portfolio without remortgaging, which you may want to avoid if you’ve secured a low, base rate tracking mortgage. This could be a good option should you need to do some work on an existing property or raise finance for a new one.

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

Every different kind of property owner needs buildings insurance to take out a mortgage. Landlords are no exception. In fact, you should strongly consider specialist 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.