Remortgage as a limited company

Why landlords use limited companies

For higher-rate taxpayers, holding rental property in a limited company means the company pays corporation tax on rental profits and mortgage interest is fully deductible as a business expense. Personally-held buy-to-let mortgage interest is restricted to a 20% tax credit, which can leave higher-rate landlords paying tax on profit they have not really made. The corporate route resolves that.

Worked example, the Section 24 effect

Personally held rental: gross rent £15,000, mortgage interest £9,000, allowable expenses £1,500. Personally taxable rental profit (under post-Section 24 rules) is £13,500 (rent less expenses, before mortgage interest). At 40% income tax that is £5,400 of tax, partially offset by a 20% credit on mortgage interest of £1,800. Net tax bill £3,600. Real cash profit after the mortgage is £4,500. Effective tax rate: 80% of cash profit. Inside an SPV, the same numbers produce taxable profit of £4,500 (rent less expenses less full mortgage interest) at 19% to 25% corporation tax: £855 to £1,125. Net tax bill drops by roughly £2,500 to £2,750 a year per property.

The lender pool is smaller

Not every lender does limited-company buy-to-let. The pool is roughly a third the size of the personal buy-to-let pool. Rates are usually a small step higher because the case is treated as commercial in nature. Most lenders require a Special Purpose Vehicle (an SPV is a limited company set up purely to hold property), with specific Standard Industrial Classification codes confirming the company exists only to hold property.

Personal guarantees

Almost all limited-company buy-to-let lenders require personal guarantees from the directors. That means if the company defaults, the directors are personally liable. The corporate wrapper protects the upside, not the downside. Plan accordingly.

Rental stress tests

Lenders test rental income against the mortgage payment at a stress rate, often 125% to 145% cover at a stressed interest rate. Limited-company stress tests are usually slightly more generous than personal buy-to-let, because the company tax position is cleaner. Typical lender ICR (Interest Cover Ratio) for an SPV: 125% at a stress rate of 5.5%, versus 145% at 5.5% for a higher-rate taxpayer in personal name.

Moving an existing personally held property into a company

This is technically a sale from you to the company, which means SDLT (Stamp Duty Land Tax) at standard rates plus the 5% additional-property surcharge, and capital gains tax (CGT) on any gain in your hands. On a property worth £250,000 with a £75,000 gain since purchase, SDLT including the 5% surcharge is roughly £15,000 and CGT at 24% on the gain net of allowance is roughly £15,000. So £30,000 of upfront cost. Incorporation Relief or Section 162 can defer CGT for active landlord-businesses. The numbers usually only work for portfolios of three or more properties; below that, the upfront cost rarely pays back. We coordinate with your accountant before moving anything.

Buy-to-let warning

Most buy-to-let mortgages, including company-held buy-to-let, are not regulated by the Financial Conduct Authority. Consumer Buy-to-Let cases (typically inherited or accidental landlords) are regulated, but most company landlord cases are not. We tell you up-front which side of the line your case sits on.

Common pitfalls we see

Setting up an SPV with the wrong SIC code (lenders reject Standard Industrial Classification codes that include trading activity). Buying a single property in personal name for "simplicity" then realising at year three that the tax drag has eaten the cash flow. Underestimating the legal cost of moving existing properties into a company. Not running personal guarantees past the spouse for sign-off. We work all four with you and your accountant before applying.