Buy to let Landlords, who have a current property portfolio, get in touch to speak with one of our mortgage advisors in Birmingham asking if there’s any way to exchange ownership from your name(s), into the name of your own limited company?
Firstly, you will need to understand the significance of how mortgage lenders approach Limited Company purchases, and there are only a handful of mortgage lenders that accept Limited Company applications through anything other than a Special Purpose Vehicle or (SPV) Company.
For example, a company set up expressly to invest in a particular type of property. What happens is when you register a company, the registration includes a Standard Industrial Classification (SIC) a code that sets out the business type(s) in which the company participate.
Additionally, mortgage lenders wouldn’t accept applications from trading companies that can make trades in other areas, like a plumbing or heating company. In any case, you would then need to set up a separate company to own your BTL properties, instead than purchasing them through your plumbing company.
The SIC codes typically accepted are 68100, 68201, 68209, 68320 but it can vary from lender to lender. To find out more information about SIC Codes, consult the Government website click here.
Firstly, not every mortgage lender will consider applications from an SPV, preferring to limit their lending to individuals/couples in their name(s), which means that individuals tend to have a wider choice of lender and product than SPVs.
Secondary, lenders that will lend to an SPV, the mortgage rates offered would typically be higher than those provided to individuals. In recent years, changes got made to the way rental income is taxed. For many people, the tax advantages generated by SPV ownership (relating to how payment gets taken and how that income is taxed) more than make up for any extra interest charges or lack of choice.
We would highly recommend when considering whether to buy your property portfolio under the auspices of an SPV, is that you take specific advice from a specialist Tax Advisor in Birmingham.
They will assess how factors such as your other income sources, and the rate of personal income tax you pay will affect your overall tax status and establish whether individual or SPV ownership is the best choice for you.
By now, you have taken into consideration the main factors in deciding where they buy under an SPV is your tax position. Which complicates things when choosing to whether to transfer properties you already own as an individual into company ownership.
Firstly, the issue is that these sorts of transactions are not a simple transfer; it is a change of legal ownership. The Limited Company is a separate corporate identity, so the transaction is effectively a purchase by the SPV from you selling as an individual, so stamp duty charges, legal costs and new mortgage and valuation charges will apply.
Secondly, it’s important to remember that limited companies have running expenses and legal obligations. However, these may get offset by the potential upside of some tax-deductible costs or long-term tax benefits.
Landlords are looking to increase their property portfolio, and it often works out that they continue to hold existing properties in their sole name(s) but purchase any new additions under the company name, therefore avoiding all the on-costs of switching. Bear in mind, every case is different, and there may be some circumstances where a switch would be beneficial in the long run, even considering the costs of switching.
As you can see, this is a particular territory. If you are thinking about taking this route, our team of experienced Buy-to-Let mortgage advisors in Birmingham are ready to help you with all the arrangements, providing top quality mortgage advice in Birmingham, backed up by introductions to appropriately experienced accountants and solicitors as required.