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Many landlords will have plenty of questions surrounding incorporating their buy to let portfolio and whether it’s the best decision for them. Our latest article answers some of the most common questions we hear to help you decide whether it’s the right property investment plan for you.

Changes to income tax and stricter lending criteria (as set out by the Prudential Regulation Authority) are forcing landlords to review how they operate their property portfolios. For some, owning and borrowing personally will be the most effective route, but for many, particularly those in the higher tax brackets, moving to a Limited Company ownership structure could be the answer.

For any landlord yet to seek professional tax advice in this regard, please do so as a matter of urgency. Landlords need to know exactly where they stand on this issue, so please talk to your accountant or qualified tax specialist before making any property investment decisions.


1. Can I simply transfer my buy to let properties into a Limited Company?

No. By law, you can't simply "transfer" properties; instead, the transaction is viewed as a sale from you personally into the Limited Company. This means you and the company will need to consider any costs of sale/purchase, such as, but not limited to:

  • In England and Northern Ireland, Stamp Duty Land Tax (SDLT), including a 3% surcharge even though it might be the company’s first purchase.
  • In Wales, Land Transaction Tax (LTT), including a 4% surcharge even though it might be the company’s first purchase.
  • In Scotland, Land and Buildings Transactions Tax (LBTT), including a 4% surcharge even though it might be the company’s first purchase.
  • Legal fees and disbursements
  • Capital Gains Tax


2. Can I stay with my current lender?

When you incorporate your portfolio, the Limited Company becomes the owner of the property rather than you personally.

If your mortgage is with a lender that also lends to Limited Companies, they may allow you to remain with them without asking you to redeem your current loan (possibly avoiding ERCs). The lender will change the ownership to a Limited Company internally without a broker’s involvement.

However, some will ask you to start over with a new application, and some will simply not allow this.  If this is the case, you will need to start the mortgage application process again with a new lender, which can incur additional fees such as ERCs.

For example, if you have a buy to let mortgage with, say, BM Solutions which does not lend to Limited Companies, then no, you cannot stay with them.

It is worth noting that lenders are not obliged to allow you to remain with them after incorporating, regardless of whether they lend to Limited Companies. You will need to approach your lender and ask and check to see what fees you may incur to transfer the mortgage to the Limited Company.


3. Does the company have to have cash in it for the deposit?

No. When you sell the properties to the Limited Company, any equity you leave in them will be treated as a director’s loan, which means that so long as you have sufficient equity in the properties, you will not need to put in cash.


4. Can I borrow more than I currently owe?

Yes. As mentioned above, from a mortgage lender’s perspective, this type of transaction is treated as if the company were buying the property from an unrelated third party. As such, you can borrow as much as you need - within the lender’s limits. We frequently see borrowers who will re-arrange their portfolio when they incorporate to fund further investments or to cover the costs of incorporation. However, it’s essential you seek professional tax advice, as some restrictions may apply to incorporation relief eligibility.


5. I currently own a buy to let property in my name, but want my spouse to be a shareholder in the company, will this be an issue?

No, from a lender’s perspective, as long as you (as the current owner) will be part of the new company, then this is not an issue.


6. Do I have flexibility on the price at which I sell my property to my Limited Company?

Lenders will require you to sell the properties at the open market value. If you sell them for less, this would be viewed as an under-market transaction which lenders do not allow, and the tax man would take a very dim view!


7. Can I set up a new company or does it have to have been trading for a period of time?

You can set up a brand-new company that has no trading record. Some lenders will take unsupported personal guarantees from the directors and (most often) the majority shareholders. Because of this, lenders are more interested in the applicants and majority shareholders and form their lending decision on them, rather than the history (or lack of), of the company.

For more information about borrowing through a newly set-up Limited Company, visit our blog here.


8. Can I take a single mortgage out on all the properties?

This type of lending is called a portfolio loan, and whilst some lenders may offer this option, it’s not very common. It’s worth considering the benefits and drawbacks of a portfolio loan before making any property investment decisions.

A key benefit is that you only have one loan to service, which means just one mortgage application and keeps the upfront costs down. However, portfolio loans tend to fall into the commercial rather than buy to let remit, which means that, typically, they are more expensive than a buy to let mortgage. A good broker will give you options for both for you to consider.


9. Will I have to pay stamp duty?

Most likely, yes. As mentioned earlier, any SDLT, LTT or LBTT on most residential purchases made by Limited Companies, including the first purchase, will incur a 3% surcharge. Relief from stamp duty could be available on the incorporation of a partnership – however the qualification rules are strict, and you will need to take tax advice to ensure that you qualify for this relief.  If you come across a scheme which allows you to avoid paying the stamp duty, BEWARE and take property legal advice. If it seems too good to be true, it probably is!


10. Will I have to pay capital gains tax?

Most likely, yes. Again, there is possible relief from CGT if you can demonstrate that you run your portfolio as a business, not just as a (passive) investment. Inevitably the criteria for determining whether you meet the conditions for relief are complex and open to interpretation, but one indicator is whether you spend at least 20 hours a week personally undertaking work on the portfolio (e.g., maintenance work, negotiating with tenants etc.). However, you should take proper tax advice and avoid “too good to be true” schemes. From a mortgage perspective, lenders will be comfortable with bona fide schemes ONLY if they can be sure that all liabilities can be satisfied, and you will not find yourself with a big, unexpected tax bill down the line.

Remember to take professional advice before making any property investment decisions. You might find that your accountant recommends that you continue to hold any properties you already own personally, and only set up a Limited Company for new acquisitions. There really isn’t a “one answer fits all” solution.

Speak to our experts 

If you have any properties requiring buy to let finance, do get in touch to talk through the options. Both the buy to let and commercial team here have lots of experience in this field, so don’t be afraid to ask. Submit an enquiry here, or call our expert brokers on 0345 345 6788.


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