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Could you benefit from using a Ltd company to purchase buy-to-let (BTL) properties?

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Thinking of setting up a Limited Company to invest in Buy-to-Let (BTL) property?

In recent months, there has been quite a bit of coverage about using Special Purpose Vehicles (SPVs) to separate rental income from a landlord’s personal income.  So, we decided to run a piece on this, to help clear up the facts:

Limited Companies can indeed be used to facilitate the purchase of Buy-to-Let (BTL) properties and rental funds can then be drawn from the company via salary, expenses and benefits, dividends, or director’s loans. There are several lenders who specialise in limited company BTL mortgages. They usually require the limited company to be a Special Purpose Vehicle (SPV), i.e. a company which is set up just to hold property assets, where the SPV and can be set up as part of a mortgage application, if required.

However, it is important to understand the pros and cons of doing this depending on your circumstances and goals.

Here are some of the benefits of using an SPV:

  • If you are an additional or higher rate tax payer, by using an SPV, your rental income is not immediately subject to your highest marginal rate of tax. It would be subject to corporation tax only, assuming the company is in profit.
  • Setting up an SPV does not have to be complicated.
  • The legal entity can be set-up for purchasing property and funded as such.
  • Building a BTL portfolio via an SPV can be a useful way to build and boost your retirement income, whilst giving you flexibility to manage your highest marginal rate of tax in retirement.
  • The SPV can have multiple shareholders, meaning that it can be useful for estate and legacy planning, specifically, for passing on assets to children and grandchildren.
  • As properties are owned by the SPV, assets will not be liable to Stamp Duty and Capital Gains Tax
  • Leverage – the SPV can be leveraged to fund further expansion of the portfolio.
  • Limited liability – a limited company status means that your liability runs only to any investment that you make in the company.
  • There are fewer age restrictions imposed by lenders when lending to a limited company, than to an individual.
  • Increased credibility – there is a perception that limited companies have greater credibility, making it easier for landlords to attract good tenants.

When is it not suitable to use an SPV?

  • If your goal is to buy and sell property for profit, this is unlikely to be a robust planning strategy. This is because SPVs are helpful, in the most, for managing income in the long term.
  • If you already have an established portfolio of properties that you hold personally, it may not be advantageous to transfer these assets to an SPV as there may be stamp duty and capital gains tax to pay on transfer, which can outweigh the benefits.
  • If you are only planning to own just one BTL property, using an SPV may not be suitable in this situation.

We work with local Accountants helping clients to understand the suitability of SPV lending and the tax implications around this.

To make an enquiry, please call me on 01628 308138.

A CCould you benefit from using a Ltd company to purchase buy-to-let (BTL) properties?