Is it better to buy a BTL property as an individual or company?

by Charleston Financial

The demand for BTL mortgages in the UK is rising as record pace as it is one of the most tax-efficient investment strategies. BTL mortgage applicants often ask the question, whether it is better to buy a property as an individual or a limited company.

Our mortgage advisers will assess the suitability of either the personal lending route or limited company route for BTL as this will depend on applicants financial and other circumstances.

The conventional way of buying a BTL property is to have the ownership of it in personal names. The limited company route has become increasingly popular among landlords due to changes in the tax legislation. Applicants should speak to an experienced mortgage adviser & their tax adviser before making a decision.

As per the information taken from Statista, the number of private tenants in the UK is on the rise and rents are increasing

Lenders have come up with various BTL mortgage solutions to cater the rising demand for BTL properties.

Limited company SPV for BTL property purchase

Potential landlords set up limited companies to buy BTL properties. Lenders identify these limited companies as special purpose vehicles (SPV). The main purposes of these companies are to manage to buy and to sell of own real estate and letting and operating of own or leased real estate. The limited company directors and shareholders should ensure that they have set up the company properly on Companies House with correct SIC Codes which indicates the nature of business.

The main differences between a limited company mortgage and a standard BTL mortgage

If someone buys a property in a personal name, the applicant would be individually liable for the property and the debt. On the other hand, if an applicant uses a special purpose vehicle (SPV) to buy a property, the company would be liable for its assets and other capital. However, most lenders in the mortgage industry would require a personal guarantee when applying for BTL property purchase via limited company SPV.

As per Section 24 (S24) of recent tax legislation, the high-rate (40%) taxpayers who own BTL property in the personal name would pay more tax on the annual rental income compared to a similar landlord who owns the property via a limited company. This is because the landlords are no longer allowed to deduct the mortgage interest when calculating the taxable profit.

On the other hand, when landlords own the BTL property via a limited company, their annual rental income would be subject to corporate tax (19%). There is a huge tax benefit for some applicants when applying via a limited company for BTL property purchases. It is important to note that, it doesn't work the same way for all applicants as it depends on the applicant's tax position. Therefore, it is advisable to speak to a mortgage adviser and a tax adviser

Would the tax benefit be offset by the interest and other costs in the limited company route?

Mortgage industry research indicates that limited company BTL mortgage interest rates and product fees are slightly higher than the standard BTL mortgage costs. An experienced mortgage adviser would help the applicants to run a cost vs benefit analysis to identify the suitable option for each applicant.

Due to the increasing popularity in the limited company mortgage space, specialist lenders have now started to provide attractive deals to compete with the high-street lenders operating in the standard BTL space. Also, one of the high street lenders launched limited company BTL products recently. This would further increase the competitive rivalry among lenders and applicants would benefit from suitable deals.

Which option would give you more money?

BTL mortgage affordability is dependent on several factors. Standard BTL mortgage applicants would be assessed based on their income tax band, property value, and expected rental income. Also, BTL mortgage lenders use a stress test when determining the maximum loan amount affordability. Usually, the lenders allow the applicants to borrow more money with 5 years fixed deal compared to 2 years fixed deal.

Overall, the limited company route would allow the mortgage applicants to raise a higher amount of cash. This is because of the way lenders consider the risk apatite of the two routes and limited company mortgages provide more depth. One common feature would be both the limited company and standard BTL lenders would require a minimum 20-25% deposit. Applicants would require a minimum 25% deposit to achieve the most competitive rates, as lower deposit of 20% are still fairly limited due to higher risks to the lending provider.

What if I am planning to build a portfolio of BTL properties?

If a landlord is planning to build a portfolio of BTL properties, the limited company route would be more suitable due to the overall tax benefit and borrowing capacity. When a landlord owns more than four BTL properties, they would anyway be classified as a portfolio landlord. Some lenders might prevent from offering standard mortgages to portfolio landlords as they would need to apply for portfolio mortgage products.

Both the high street lenders and specialist mortgage providers have now entered the limited company BTL market. It has given more opportunities for future landlords to plan their investments.

Why it is important to connect with an experienced buy to let mortgage adviser to plan your BTL mortgage?

The experienced mortgage advisers would be a critical success factor of the whole house buying process as they integrate all related parties in the home buying process. They would first sit with the applicants to discuss the key circumstances and figure out the suitable type of mortgage application. Then, the adviser would submit the full mortgage application to the lender along with all supplementary documents. Receiving the mortgage offer from the BTL lender would be a crucial milestone. It is important to monitor the progress of the purchase with the solicitor until contract exchange and completion!


As a mortgage is secured against your home, it could be repossessed if you do not keep up with the mortgage repayments, it is also important to ensure you obtain tax advise from a qualified accountant

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