Limited Company Mortgages – When and Why You Might Choose One

Mortgage Loan

If you’re a residential landlord, the chances are – you’ve built up your property portfolio using traditional buy-to-let mortgages. All the properties are probably in your name and you’re paying tax on the earnings from each property. It’s a fairly standard train of thought and one that has served the residential landlord community well over the years. But there is another way. One which has some distinct advantages over the traditional buy-to-let structure and one which, from April 2017 – could save your £££’s in tax on your earnings.

Limited Company Mortgages

Setting up a Limited Company to buy and hold your residential property portfolio is fast becoming a popular alternative for residential landlords. The properties are purchased and owned by the company and not you. This means that you don’t pay income tax on the rental or sale earnings provided that the company reinvests the money into other properties or the maintenance / upkeep of the existing portfolio.

It also means that when you start your company, you can loan it money for the deposit of your house purchases and then pay yourself back the money from the profits in the future without incurring any tax penalties. You’ll also be able to pay yourself up to £5,000 per year in tax-free dividends from the profits of your limited company and if you’re a higher rate tax payer already, your limited company will pay less tax on profits than you would on rental earnings.

Of course there are disadvantages too. There is no capital gains tax allowance for example and you’ll have the additional costs of running and filing accounts for a limited company. It’s best to seek both legal and independent financial advice before making the decision to go either way. If you do speak to an Independent financial adviser, they will also be able to provide information and access to a range of Limited Company Mortgages. If you choose to go down the limited company route – limited company mortgages are the only way in which you’ll be able to build you property portfolio if you need to borrow money long-term.

This article gives a brief introduction to the world of Limited Company Mortgages but should not be taken as formal financial advice. For that, we recommend you book an appointment with your local independent financial adviser.

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