You must setup a new limited company.
You can’t setup with your current limited company. This is so you can prove to mortgage lenders that you have set up a new company with the sole intention of that company being used to invest in property and nothing else.
The new company must be setup with at least one of the following Standard Industry Classifications (SICs)
- 68100 – Buying and selling own real estate.
- 68209 – Other letting and operating of owned or leased real estate.
- 68320 – Management of real estate on a fee or contract basis.
The company applies for the mortgage and the income of the directors is then assessed. There’s not yet a lender who can do Ltd Company Buy to Lets and assess you as a contractor, and as such it’d be a case of using the Company Accounts.
Taking money out of the company
There are other questions and costs to consider when setting up a limited company, for example how is the money in the company passed to the individual? The money can be taken out of the company as a dividend, but from April 2016 only the first £5,000 of dividend income is tax free. Any dividends taken out above this amount this will either be charged at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer, or 38.1% for an additional higher rate taxpayer. This tax is after the corporation tax at 20% has been paid. *
The money could be taken as a salary, but the company would have to operate PAYE and pay Employers National insurance contributions. In some cases, this can work out more expensive than paying dividends. *
*Information above from Loan.co.uk, June 2017
Interest rates charged on mortgages to companies have historically been higher than to individuals. Comparing rates charged between individuals and companies should be considered as well as the tax implications.
Due to the complexities in this area we recommend that Landlords seek proper professional advice before making the decision to move to a limited company structure. The information provided in this guide is of a general nature. It is not a substitute for specific advice on your own circumstances. We recommend obtaining specific professional advice from a tax and legal adviser before you take or refrain from any action.
Your property may be repossessed if you do not keep up repayments on your mortgage.
Super Contractors does not offer advice on taxation matters. Please seek expert advice from a tax specialist.
Super Contractors is a trading name of Contract Mortgages Ltd, registered in Scotland at 1st floor, 207 Bath Street, Glasgow, G2 4HZ SC465654. Contract Mortgages Ltd is an appointed representative of First Complete Limited, which is authorised and regulated by the Financial Conduct Authority (FRN: 435779) for mortgage and non-investment insurance advice. Some buy to let mortgages are not regulated by the Financial Conduct Authority.