Individual vs. limited company

It’s a bit like comparing apples with pears when it comes to how you decide to own an investment property. What is important, is that you get the appropriate advice from a qualified property tax adviser, as each landlord's circumstances can differ depending on your overall property portfolio objectives.

In its purist format, interest rates for limited company buy-to-let mortgages are more expensive when comparing against products for individual buy-to-let mortgages. As the buy-to-let mortgage market evolves there are now more lenders considering limited company applications but not all lenders will consider them.

Of the lenders that do consider limited company applications we have seen a shift to parity, when comparing interest rates against their individual interest rate products. In effect, offering the same interest rate whether you are applying as an individual or applying as a limited company.

Having it clear in your mind what are your overall property portfolio objectives, are never more important than at the beginning of the building your property portfolio. What are your long-term plans and what is your end game. Your ideas and thoughts should form the cornerstones of your initial conversations with your qualified property tax adviser to assist when deciding the structure of your property portfolio.

Whilst not an exhaustive list, it is important to have a list prepared to discuss with your tax adviser. What are the differences in costs when purchasing a property within the different structures? What are the differences in tax regimes when looking to draw income from your property? What are the differences in costs when selling a property? How many properties do you intend to have in your property portfolio? What is your retirement strategy? What is your estate planning strategy?

A qualified property tax adviser will be able to provide clarity for your questions to assist you in your decision-making process.

In isolation, if we take a look at the level of buy-to-let mortgage debt achievable when comparing individual to limited company mortgages then one of the key components of the overall calculation used by lenders, is the Interest Cover Ratio (ICR). In general terms and if you are a higher or additional rate taxpayer then the ICR used by most lenders, is 145 per cent. For limited company applications the ICR used by most lenders is 125 per cent.

Example

For £1,000pm rental income. Assume a notional interest stress rate @ 5.5 per cent.

£1,000 divided by 5.5 per cent, multiplied by 12 = £218,181. Divide by the ICR of 145 per cent = £150,470.

£1,000 divided by 5.5 per cent, multiplied by 12 = £218,181. Divide by the ICR of 125 per cent = £174,545.

It depends on your palate, apples and pears are both flavoursome. We do see a number of different landlords with various fruits within their property portfolio bowl.

Please note lenders have different minimum criteria requirements and not all landlords and property types will qualify for this specific product. For further information contact NRLA Mortgages.

This is an advertisement only and in no way should be viewed as a personal recommendation or advice. Before a recommendation of the suitability of the product can be given, we will direct you to 3mc (UK) Limited who can provide specialist mortgage advice. As part of this they will ask questions so that they can fully understand your circumstances before giving advice.

NRLA Mortgages is a trading name of LPTE Limited which is an Introducer Appointed Representative of 3mc (UK) Limited who is Authorised and Regulated by the Financial Conduct Authority and is entered on the FS Register under reference 302992.

Please note: 3mc can advise/arrange Business Buy to Let (BBTL) and Consumer Buy to Lets (CBTL). Of the two, only Consumer Buy to Lets are regulated by the FCA.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ANY PROPERTY USED AS SECURITY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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