10 Most Commonly Asked Questions about incorporating a Buy-to-Let Portfolio into a LTD company

28 Apr 2020

10 Most Commonly Asked Questions about incorporating a Buy-to-Let Portfolio into a LTD company

10 of the Most Commonly Asked Questions Regarding incorporating your Buy-to-Let Portfolio to an SPV

Recent changes to the income tax regulations, alongside more stringent lending criteria as defined by the Bank of England’s Prudential Regulation Authority (PRA), mean that many landlords are now reviewing their property portfolios. While owning and borrowing on a personal basis might be the most attractive approach for some, many landlords (particularly those to whom the higher tax bracket applies) may wish to investigate the possibility of incorporating their buy-to-let portfolios.

With incorporation an ever-more common practice, we receive countless enquiries from landlords asking about the arrangement every week. With that in mind, we’ve compiled a rundown of ten of the most commonly asked questions below to provide an overview of the subject. However, it must be stressed that these guidelines should not serve as a substitute for professional advice and that any landlord considering their options should consult with their accountant or an experienced tax specialist as a matter of the utmost importance before making a decision.

1. Is it possible to transfer my existing buy-to-let properties into a limited company?

Unfortunately, it’s not possible to simply transfer existing buy-to-let properties into the ownership of a limited company. Instead, you must treat the transaction as you would with any other property acquisition, which means that the limited company must consider costs and fees incurred by the sale, such as:

Any legal disbursements and fees associated with the sale
Stamp Duty Land Tax (SDLT) in England and Northern Ireland
Land Transaction Tax (LTT) in Wales
Land and Buildings Transaction Tax (LBTT) in Scotland

All of the taxes mentioned above include a 3% surcharge, even if the property represents the limited company’s only purchase to date.

2. Is it possible to remain with my current mortgage provider?

Upon incorporation of your portfolio, all ownership of the buy-to-let properties in question will transfer from you to the limited company. There are certain mortgage providers who will permit this sale to take place without redemption of your existing loan, which could potentially avoid early repayment charges and would dispense with the necessity of launching a new application.

However, this is only available from specialised providers who offer buy-to-let mortgages for limited companies. For example, if your existing mortgage arrangement is through a company which does not lend to limited companies, you will not be able to remain with them and will instead have to search for a new provider and begin a new application.

Even if your existing mortgage provider does lend to limited companies, they are not obliged to allow you to remain with them after incorporating your portfolio. Furthermore, you should also be aware that the provider may charge fees for the transfer of the mortgage from private landlord to limited company to take place.

3. Does my limited company need an injection of cash to act as a deposit?

Once the incorporation of the properties into the limited company is complete, any equity residing in those properties will be viewed as a loan from the company’s board of directors. This means that as long as the properties contain sufficient equity, it is not necessary to inject cash into the limited company to act as a deposit.

4. Is it possible to borrow a greater sum than that which I already owe?

From the perspective of the mortgage provider, the incorporation of buy-to-let properties into a limited company is treated the same as any other transaction from an unrelated third party. As a result, you are entitled to borrow as much capital as you need (taking into account the mortgage provider’s limits, obviously), regardless of how much you already owe. It’s not uncommon for landlords to reorganise their portfolio during the incorporation process, in order to cover its costs or to free up capital to fund other investment projects.

5. Can my spouse become a shareholder in the limited company after incorporation?

As long as the current owner (i.e. you) of the properties is involved in the limited company, there is no problem in creating a shareholder position for your spouse.

6. Do I have flexibility on the prices of the properties when incorporating them?

It is a legal requirement that you sell the properties to the limited company at their current market value. Doing so for any less than that value would be interpreted as an under-market transaction, which is not only an infringement of the policies of all mortgage providers, but actually illegal in the eyes of HMRC.

7. Does my limited company have to have been trading for a specific length of time before incorporation?

It is not necessary for the limited company into which the properties will be incorporated to have been trading for any length of time at all. Normally, mortgage providers will accept unsupported personal guarantees from both the directors and shareholders of the limited company, meaning the approval of the mortgage application will be dependent on their credit history, rather than that of the company.

8. Is it possible to take out one single mortgage on all of the properties in my portfolio?

Taking out a single mortgage on all incorporated properties is a common practice known as a “portfolio loan”, which has both advantages and disadvantages compared to individual mortgages for each property. In the plus column, portfolio loans only require one single application, which eliminates much of the upfront expenses associated with the application itself. On the other hand, portfolio loans are generally viewed as commercial transactions, which means they may incur a higher rate of interest than a standard buy-to-let mortgage. It’s a good idea to discuss all of your options with your mortgage broker before making a decision.

9. Is it necessary to pay stamp duty on all of my properties?

In almost all cases, it’s a legal requirement for you to pay either SDLT, LTT or LBTT on residential properties owned by a limited company, depending on which part of the UK you reside in. As mentioned above, almost all purchases (including the first one made by a limited company) will incur a 3% surcharge. Any product which promises to bypass paying stamp duty should be considered with caution; always seek professional legal advice before agreeing to such an arrangement.

10. Is it necessary to pay capital gains tax on all of my properties?

Again, capital gains tax will need to be paid on all properties owned by a limited company as a legal requirement of HMRC. While there are certain products which circumvent the payment of capital gains tax, these are few and far between and again, should be viewed with caution. In general, mortgage providers will only ever approve an application if they are satisfied that you are not likely to be landed with a sizable unpaid tax bill further down the line through pursuing such a scheme.

Contact us now to discuss your personal options, Revolution Finance Brokers specialise in commercial and residential finance in Essex, Kent, London and Hertfordshire.



Almas Uddin

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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature. We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.