We talk about Limited Company borrowing with clients A LOT at MFB. Whilst there is no doubt that this is the right way to invest for many, there are still those who choose not to purchase through an SPV limited company.
Jeni Browne offers her thoughts on three key reasons why you might still want to invest in your personal name.
Tax Position
The biggest driver for people opting to use a limited company for their buy to lets is how you can offset your costs and, therefore, how much tax you will pay. This is primarily beneficial to those whose total income, including gross rental income, pushes them into the higher rate, 40% tax bracket. So, whilst this helps some landlords, many do not fall into this group and thus would not benefit in the same way. Please seek professional tax advice before making any property investment decisions.
Mortgage Costs
Although the difference between personal and limited company mortgage rates has decreased considerably over the last few years, limited company rates are typically still a little higher, especially on standard vanilla properties. Some borrowers (irrespective of the tax implications) are more focused on the mortgage cost and will transact in their personal names in order to keep the mortgage costs down.
Too Much Hassle
For some, the idea of setting up and then running a limited company feels inconvenient or possibly, daunting. We have plenty of clients who simply take the view that it's much simpler to borrow personally and prefer to do so, and that's completely fine!
Common Misconceptions
There’s no problem in choosing to use your personal name rather than a limited company for your property portfolio. However, there are some misconceptions and misnomers that shouldn’t affect how landlords invest.
Some people believe it’s much harder to invest through a limited company, but this simply isn’t true. As limited company borrowing has become more popular, the application process takes around the same time as a personal application, and more and more lenders are offering limited company products.
Another misconception is that you need to evidence trading history in your limited company, which is not necessarily the case. If you choose to open a Special Purpose Vehicle (SPV) limited company, then you won’t need any trading history, as the sole purpose of the company is for purchasing and managing property. For new SPVs, lenders underwrite the company directors in the same way they would for a personal name application.
Landlords often ask us how to pay a deposit through a limited company. While this may seem complicated, putting money into your limited company is extremely simple, and if you have any concerns, an experienced broker can talk you through the process.
If you're unsure whether you'd benefit from investing in buy to let property via a limited company, you must speak to a qualified tax advisor. If you'd like mortgage illustrations to compare options, our team can draw those up for free to help with your decision. As a whole of market buy to let broker, we can source finance for individuals, SPV limited companies, and even trading limited companies.
If you have any questions about buy to let mortgages give our expert team a call on 0345 345 6788 or email enquiry@mfbrokers.co.uk, and they'll be happy to help.
What next?
Are you looking to secure a buy to let mortgage? Head over to our easy-to-use buy to let mortgage calculator to compare rates or get in touch with one of our BTL mortgage brokers.
