Setting up an SPV buy-to-let limited company
One of the main questions landlords ask us is how to set up a limited company for buy-to-let mortgages. We will show you how to do it and what the mortgage lenders are looking for to enable them to lend to you.
Due to changes to the way that landlords are taxed on their buy-to-let properties many landlords have decided to purchase property in the name of a limited company.
The limited company can be an existing trading company, or more commonly, a special purpose vehicle for holding and letting out property, otherwise known as an SPV Limited company.
What is an SPV limited company?
An SPV Limited company is a special purpose vehicle company set up at companies’ house with the special purpose of holding and renting out property.
Most buy-to-let lenders will only lend to an SPV Limited company.
Why do buy-to-let lenders only lend to SPV limited companies?
Buy-to-let mortgage lenders will only lend to an SPV limited company because it is set up for one purpose and that is to rent our property.
The other option is to lend to a trading company which will complicate matters.
Do buy-to-let lenders lend to existing trading limited companies?
There are some specialist buy-to-let lenders that will lend to your existing trading company.
If you wish to purchase property and hold it in the name of your trading company, you will find your buy-to-let mortgage options are more restricted.
When looking at a client’s options we will always give them a comparison of a lender that will lend to an SPV limited company versus a lender that will lend to an existing trading company.
How do you set up a limited company?
You will need to register a new company at companies’ house.
You will need to specify the company name, its registered address and state who the directors of the limited company are.
Which SIC code should you use at companies’ house for the new limited company?
In addition, you will need to specify a business type that will allocate a corresponding SIC code.
For buy-to-let lending you should use one or more of the following SIC codes:
- 68100 – BUYING AND SELLING OF OWN REAL ESTATE
- 68209 – OTHER LETTING AND OPERATING OF OWN OR LEASED REAL ESTATE
- 68320 – MANAGEMENT OF REAL ESTATE
- 68201 – RENTING AND OPERATING OF HOUSING ASSOCIATION REAL ESTATE
Your limited company buy-to-let questions
Which buy-to-let mortgage lenders will lend to an SPV limited company?
Specialist buy-to-let lenders will lend to an SPV limited company.
Many of the high street banks will only lend if you are purchasing a property in your own name.
Due to the increasing popularity of owning a property through a limited company, there are increasing numbers of lenders that will lend to an SPV limited company.
With access to the whole of the market, we are well placed to secure market-leading finance for our clients.
Can I transfer my property portfolio from my personal name into a limited company?
Transferring your buy-to-let from a personal name to a limited company name may be tax-efficient in the long term.
You should consult your accountant to ensure that paying the stamp duty and capital gains is going to be worth the income tax saving in the long run.
When you transfer your property portfolio from a personal name to a limited company name it is treated as a purchase by mortgage lenders.
The good news is that lenders can use the equity in the property as your deposit (treated as a director’s loan).
The bad news is that you will have to apply to a specialist buy-to-let lender for a new mortgage on each of the properties.
You can not simply keep the mortgage with the current lender and change the ownership, you will instead have to redeem the current loan and take out new lending with a separate lender.
Do I need to provide a personal guarantee if taking lending out through a limited company?
All limited company buy-to-let lenders require that you provide a personal guarantee to repay the mortgage in full.
A limited company is nothing more than a tax-efficient wrapper, the lending is still underwritten on the director/shareholder of the limited company.
My new limited company has no accounts will lenders still lend?
As discussed, the lending is underwritten on the director/shareholder and not the limited company.
The limited company only acts as a tax-efficient wrapper.
Some of our clients set up a new limited company for each property they own as the directors may be different or they just want to keep them all separate for accounting purposes.
How much can I borrow in a limited company buy-to-let?
Lenders can typically lend more to limited companies.
Lenders will apply less stringent stress tests because limited companies are taxed in a different way to buy-to-lets held in personal names.
A useful calculation to use is annual rent / 125% /5% to get you to the loan amount you can borrow.
There are even more generous calculations available so discuss your borrowing needs with your broker and they will match you to the right lender with the right rent to loan calculation.
Do I need a separate bank account for the limited company?
Yes. The new limited company will need to have a bank account set up and from which it will need to make the mortgage payments.
How director/shareholders can I have in a buy-to-let limited company?
Lenders will typically accept up to 4 applicants. Usually all shareholders with a 25% or more shareholding will need to be named on the application.
Can a British ex-pat buy property in a UK limited company?
Yes. Lenders will lend to British ex-pats that wish to purchase a property using an SPV limited company in the UK.
What type of properties can be mortgaged using an SPV limited company?
Lenders will lend on all types of property including HMOs, student lets, commercial property, semi-commercial property, multiple flats on one freehold and your everyday single unit flats and houses.
For more information and to discuss your limited company buy-to-let requirements contact a broker at Fox Davidson to find out more about our award-winning mortgage advice.