Limited Company Buy To Let
There has been a significant increase in buy to let lending within limited companies. One of the major reasons is that with everything else being equal, the borrower can borrow more as a limited company than they can as an individual applicant.
Most applicants understand this and take it as read. The key is to understand why lenders are happy to advance more to a limited company than they would to an individual.
The reason is all down to tax, you have to love HMRC sometimes…
The Company Buy To Let Example
This example is courtesy of MHA Carpenter Box;
Since 2016/17 the amount of mortgage interest that landlords can deduct from rental income before paying tax has been tapered down.
In the five years from 2017 to 2021, the tax liability in this example has increased from £9k to £30k.
If the same figures were used for a limited company borrower then that company could apply the loan interest as a P&L cost, then pay corporation tax of 19% on the remainder. This means instead of a tax bill of £30k in 2021 there would be a corporation tax bill of £9,500.
This means there is an extra £20,688 in the borrowers pocket, or as a lender would see it, an extra £20,688 to go toward loan servicing.
Because there is more cash for loan servicing the borrower can borrow more, which is why lenders are happy to advance more to a limited company borrower than they would to an individual borrower.
Tax & Landlords
The details above are a good guide and show why limited companies can normally borrow more than an individual borrower. When it comes to structuring how property is owned then please refer to your accountant.
The right structure depends on many factors, just make sure you do the right thing for you.
For any questions about company buy to let borrowing, whether that be for commercial or residential property then please get in touch, always happy to chat things through.
By Dave Farmer