Contractors' Questions: How to buy-to-let via my limited company?
Contractor’s Question: I have incorporated a limited company for some buy-to-lets I’m strongly considering, and have a limited company for contracting as well. But what next?
Should I make the buy-to-let investment company a subsidiary of my contracting company? And shall I transfer funds from the contracting company into the subsidiary in order to fund the property purchases, renovations, etc.? Lastly, when looking at reputable lenders, what level of deposit would they expect for these sort of purchases?
Expert’s Answer: The number of contractors enquiring about company funded buy-to-lets has more than doubled since the former chancellor, George Osbourne, announced a radical overall to the current tax-deductible status of mortgage interest payments.
But there’s more to it than simply setting up a new company. As to how to structure the new company, there isn’t necessarily a ‘one-size-fits-all’ approach. Thankfully though, the hard work can be carried out for you, so set-up shouldn’t distract you from your contracting day job.
The way the company is formed; its ownership and the means of transferring funds between your contracting company and the property company needs careful planning by your accountant, who must be joined by an experienced mortgage adviser. These two professionals should liaise with you to ensure that a lending solution is secured, and that it’s a solution that fits your wider tax-planning strategy.
It’s a good idea to have these conversations well in advance of your company year-end, and the intended purchase date of the properties. The reason for this is to ensure that you have ample time to fully digest your accountant’s advice, and the mortgage adviser’s advice, to consider your options and make an informed decision.
As to what lending solutions are available, company buy-to-lets remain the preserve of the specialist and commercial lenders. However, more and more lenders are embarking on this type of mortgage.
Still, due to the complexity involved in setting up and advising on company buy-to-lets, some lenders prefer to work with a small number of brokers who have the expertise to arrange these mortgages – it’s rare to find a lender who will offer this scheme directly to borrowers. This doesn’t mean that you’ll have to take an expensive mortgage deal though. Some of these lenders are beginning to ‘price match’ the buy-to-let mortgages which they offer to personal borrowers.
In terms of how much will you need to put down, deposits can be as low as 15% for landlords with experience, and 20% for those who are new landlords, although a 25% deposit will get you access to a wider range of deals.
The expert was Luke Somerset, a director at IFA Contractor Money.