Special Purpose Vehicles
As an alternative to a 'standard' limited company, you may choose to set up your buy to let company as a special purpose vehicle, or SPV.
An SPV is a type of limited company usually set up expressly for buying a property through a company. SPVs exist solely to hold ownership of your property assets, and aside from the associated rental income and mortgage expenditure, do not trade in any other way.
Setting up an SPV with Companies House is a very similar process to set up a regular limited company. The cost is £12, and the only difference is that you need to choose the correct classification code, or SIC, to explain what sort of business your new SPV is.
Buy to let through a limited company
Purchasing a property through a buy to let mortgage is available through several lenders, however, we always advise seeking professional advice before choosing which Ltd company BTL mortgage to take out, as the terms and rates can vary significantly.
Revolution Brokers work with an established network of lenders specialising in company buy to let mortgages, who have an in-depth understanding of the market and can offer tailored rates to suit your investments.
One of the main benefits of purchasing a buy to let property through a limited company is the potential for tax efficiencies. With 2020 budget changes to tax relief for landlords and modifications to the CGT regulations, limited companies have access to tax relief that can make this a more cost-effective way of investing.
Most SPV buy to let companies choose SIC code 68209 - this represents 'other letting and operating of own or leased real estate'.
While you can change your SIC code later on, it is preferable to make sure this is accurate when you incorporate your buy to let company to avoid any queries.
Buying property through a limited company - SPV
Many businesses looking for a company buy to let mortgage will choose to incorporate as an SPV to take advantage of the reductions in tax liabilities. Rather than paying income tax, as you would as a sole trader, you pay corporation tax.
Corporation tax stands at 17% for the 2020-2021-tax year, reduced from 19%. Lenders of limited company buy to let mortgages also have fewer restrictions around affordability assessments when lending to companies. This is because they are less risky in terms of being able to cope with changes in interest rates, and therefore the stress testing process is less rigorous.
Most limited companies buy to let mortgages are assessed on a minimum rental income of 145% of the mortgage repayments. SPV Ltd company BTL mortgages will usually need to demonstrate a lower rate of 125% revenue over annual repayments.
Finding the right company mortgage
When you are looking to invest in property or transfer property to a company, you must seek expert advice and recommendations.
There are many buy to let limited company mortgages on the market, all with different qualification criteria, terms, rates and flexibilities. Give Revolution Finance Brokers a call on 0330 304 3040, and we will help identify the best mortgage products for your requirements, and negotiate the terms on your behalf!
Many mainstream lenders or inexperienced brokers tend to reject applications from buy to let landlords looking to consolidate their assets in a limited company.
This happens because company buy to let mortgages are a niche product, and a specialist lender is in a better position to understand the circumstances and offer competitive lending.
Revolution Brokers work with buy to let companies large and small, new and established, and match every client with the ideal lender who offers the most competitive terms for your mortgage plans.
The criteria for mortgaging buy to let property through a limited company
Different lenders have different criteria, but most will consider the following types of company mortgage applications. However, there are multiple factors when deciding if they can finance a limited company buy to let mortgage:
- Whether the company is a new or established SPV limited business.
- How the anticipated rental income compares to the mortgage repayments - this needs to be at least 125%.
- Whether the applicant is an existing non-SPV limited company.
- If the company or owners have any adverse credit history.
- Whether the company mortgage is through a new Ltd company set up to manage the investment.
- Whether limited company owners have personal guarantees in place.
- How high the LTV ratio is - usually capped at 85%.
If you are unsure which of these criteria relate to your company mortgage, or which limited company status is more beneficial, give us a call. The Revolution Brokers team will be happy to help!
Transfer of property to a company
Usually, an SPV should be created before or at the time of the company mortgage application - it can be difficult to transfer ownership of your property to a buy to let limited company retrospectively.
This is difficult because the property must be purchased at a fair market price, which may be different from the original purchase price.
Transferring ownership of the property would also incur stamp duty at the standard rates and may incur a capital gains tax liability.
The only common scenario when buy to let properties can be transferred to an SPV is where a landlord is looking to expand their property portfolio and is consolidating existing assets under one company ownership.
Revolution Brokers strongly recommend seeking professional advice if you wish to transfer property to a company, to ensure that you understand all of the tax implications.
Purchasing a property through existing limited companies
It can be complicated securing a mortgage through an existing limited company - whether you wish to remortgage or invest in a new property.
Revolution Brokers specialise in brokering these exclusive deals and are on hand to help you obtain independent advice and expert recommendations to achieve the best outcome for your business.
Many mainstream lenders will only consider applications to mortgage through a buy to let limited company and are unable to offer terms to limited companies carrying on other areas of trade.
In this case, commercial mortgages are usually the most suitable product but speak to Revolution Brokers about your business and your planned investment, and we will guide you through the pros and cons of each option.
Purchasing buy to let property through an SPV limited company
If you have an existing SPV limited company, securing a limited company buy to let mortgage is usually more straightforward. While many landlords choose to classify their buy to let company as category 68209, there are other options:
- 68100 - a company that buys and sells real estate.
- 68201 - a company that rents and manages real estate through the Housing Association.
- 68209 - a company that lets and operates either their own or leased real estate.
- 68320 - a company that manages real estate property on a fee-based or a contractual basis.
Applying for a buy to let limited company mortgage through a new SPV can happen straight away. The responsibility for the mortgage sits with the Director since the buy to let company won't yet have a credit or trading history.
As SPVs become more popular, more lenders are offering company mortgage products tailored to this sort of limited entity. An expanding range of products is making the market more competitive, and we can help our clients access the best deals available.
Even if one lender has rejected your application, this does not mean to say that you won't be successful elsewhere, especially if you use an expert broker to manage your application through a specialist mortgage provider.