Limited Company Mortgage Guide | Everything You Need to Know About Buying Property Through a Limited Company
Are you considering buying an investment property through a limited company structure? Limited company buy-to-let mortgages have become an increasingly popular choice for landlords and property investors, particularly those seeking to expand their portfolios in a more tax-efficient manner.
By purchasing a property through a limited company, often referred to as a Special Purpose Vehicle (SPV), investors can benefit from different tax treatment on rental income and mortgage interest, as well as more flexible ownership structures. However, this route also comes with additional responsibilities, costs, and criteria that lenders expect borrowers to meet.
This guide will walk you through everything you need to know about limited company mortgages, including how they work, potential benefits, risks, eligibility requirements, tax considerations, and how they compare with traditional personal buy-to-let mortgages. Whether you are a first-time landlord exploring your options or an experienced investor seeking to optimise your property strategy, understanding the ins and outs of limited company mortgages is essential before making your next move.
What is a Limited Company Mortgage?
A limited company mortgage is a type of buy-to-let mortgage specifically designed for properties purchased through a limited company, rather than in the personal name of the borrower.
Typically, lenders require the company to be a Special Purpose Vehicle (SPV), a company set up solely to hold property. This is typically registered under SIC code 68100 (Buying and selling of own real estate) or a similar code.
Why Use a Limited Company?
Using a limited company to invest in property has become more popular, especially since tax changes affecting individual landlords.
Common reasons include:
Better tax efficiency (particularly for higher-rate taxpayers)
Full mortgage interest relief as an allowable business expense
Easier portfolio management
Potential for inheritance planning
Pros & Cons of Limited Company Mortgages
| Pros | Cons |
|---|---|
| Mortgage interest is fully tax-deductible | Mortgage rates tend to be slightly higher |
| Corporation tax (currently 19% or 25%) can be lower than personal income tax | Fewer lenders offer limited company BTL mortgages |
| Easier to add/remove shareholders (e.g. family members) | Complex setup (requires company formation and legal advice) |
| Profits can be retained within the company | Additional admin and accountancy costs |
| Potentially more effective inheritance tax planning | Tax on dividends when withdrawing profits personally |
Tax Considerations
Tax is one of the biggest motivators for using a limited company. Here’s how it differs:
| Tax Area | Personal Name (BTL) | Limited Company |
|---|---|---|
| Mortgage interest | Restricted (basic rate only) | Fully deductible as business expense |
| Income Tax | Up to 45% | Corporation Tax: 19%-25% |
| Profit withdrawal | Direct income | Via salary/dividends (may be taxed again) |
| Inheritance planning | Less flexible | Easier to transfer shares |
| Stamp Duty | Applies in both cases | Still applies (plus 3% surcharge) |
Note: Always speak with a qualified tax adviser to understand what’s best for your specific circumstances.
Eligibility Criteria for Limited Company Mortgages
Each lender has slightly different requirements, but common criteria include:
| Criterion | Requirement |
|---|---|
| Company Type | Must be a UK-registered SPV (Special Purpose Vehicle) |
| SIC Code | Typically 68100 (or 68209, 68320) |
| Directors | UK-resident, over 21, usually homeowners |
| Credit History | Clean personal and business credit profile preferred |
| Experience | Some lenders prefer experienced landlords, others accept first-time landlords |
| Deposit | Typically 25%-30% minimum deposit |
| Rental Income | Must meet lender’s stress tests, usually 125%-145% of mortgage interest at a notional rate |
| Accountant | You’ll need a good accountant to help with company structure and tax planning |
Limited Company vs Personal Buy-to-Let: At a Glance
| Feature | Personal BTL | Limited Company BTL |
|---|---|---|
| Mortgage rates | Generally lower | Slightly higher |
| Mortgage interest tax relief | Restricted | Fully deductible |
| Tax on profits | Personal Income Tax (up to 45%) | Corporation Tax (19-25%) |
| Admin requirements | Minimal | Requires accounts, company returns |
| Property ownership | In your name | In company name |
| Profit extraction | Direct | Via salary/dividends (taxed again) |
Myth Busters: Separating Fact from Fiction
| Myth | Truth |
|---|---|
| “It’s only for big landlords.” | Not true. Even first-time landlords can use a limited company. |
| “It’s too complicated.” | Yes, it’s more admin – but the long-term tax benefits can outweigh this. |
| “Lenders won’t accept me.” | There are dozens of lenders offering limited company BTL mortgages today. |
| “I can use my trading company.” | Usually not recommended. Lenders prefer SPVs to reduce risk. |
| “It’s only worth it if you own 10+ properties.” | Not always. Even one or two properties may benefit from this structure. |
Steps to Apply for a Limited Company Mortgage
Set Up an SPV Limited Company
Register with Companies House and use an appropriate SIC code.Open a Business Bank Account
This is essential for managing income and expenses.Consult a Mortgage Broker
Use a specialist broker who understands limited company BTL.Gather Documentation
Proof of ID & address
Business bank statements
Company incorporation details
Personal income details (sometimes needed)
Find a Suitable Property
Make sure the rent meets affordability criteria.Submit Mortgage Application
Your broker will guide you through the process.Legal & Valuation Process
Just like a standard BTL mortgage.Mortgage Offer & Completion
Once all checks are done, your mortgage offer is issued and you can complete.
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FAQ: Limited Company Mortgage Guide
| Question | Answer |
|---|---|
| What is a limited company mortgage? | A limited company mortgage is a buy-to-let mortgage taken out through a limited company rather than in your personal name. It is often used by landlords who hold investment properties within a Special Purpose Vehicle (SPV). |
| Why do landlords use a limited company for buy-to-let? | Many landlords use a limited company to manage their buy-to-let portfolio because it can offer potential tax benefits, such as offsetting mortgage interest and more efficient profit distribution. |
| Can any limited company apply for a mortgage? | Lenders typically prefer Special Purpose Vehicles (SPVs) that only hold and manage property investments. Trading businesses may still apply but will face stricter underwriting and fewer lender options. |
| Do I need to be an existing company to apply? | You can set up a new limited company before applying for a mortgage. Most lenders require the company to be registered with Companies House and have specific SIC codes related to property letting and management. |
| Are limited company mortgage rates higher? | Yes, rates are often slightly higher than standard buy-to-let mortgages due to additional underwriting, but the difference has narrowed as more lenders enter the market. |
| What documents will lenders need? | Lenders usually ask for company accounts, director details, proof of rental income, and property valuation. If the company is newly formed, personal income and credit history may also be assessed. |
| Who is responsible for the mortgage payments? | Directors and shareholders usually provide a personal guarantee, meaning they are responsible for payments if the company cannot meet its obligations. |
| Can I transfer existing properties into my limited company? | Yes, but it counts as a sale. You may need to pay Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), and legal fees, so it’s best to get professional advice before transferring ownership. |
| Are there tax advantages to using a limited company? | Potentially. Profits are subject to Corporation Tax rather than Income Tax, which can be lower depending on your tax band. However, professional tax advice is essential as the right structure varies by individual circumstances. |
| Do I need a personal mortgage broker or a specialist? | It’s best to use a specialist broker experienced in limited company and portfolio lending. They understand the specific lender criteria, tax implications, and SPV requirements. |