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The BTL (buy-to-let) property market is continually changing. Landlords, tenants, estate agents, and lenders all have to adapt to the latest market conditions and circumstances. Landlords may transfer their BTL property to a limited company SPV in order to take advantage of the benefits that offers. Lenders support these borrowers with new mortgage products.
This has been a rising trend recently in the BTL mortgage sector. Therefore, it is essential that you know the implications of transferring a BTL property to a limited company SPV.
If you are a landlord and planning to re-mortgage, this is the ideal time to consider transferring your BTL property to a limited company SPV. This would technically involve the landlord selling their BTL property to their own limited company SPV while redeeming the current mortgage and entering into a new mortgage agreement with an SPV specialist lender.
Landlords can do this transfer at the end of a fixed deal period. If they wish to do the transfer within a fixed deal period, they will most likely have to pay early repayment charges to the existing lender. Therefore, borrowers usually plan limited company transfers towards the end of their fixed deal period.
When a landlord transfers their BTL property to a limited company, the income becomes subject to the corporation tax rate. The tax benefit gain compared with the personal tax rate is one of the primary reasons for this transfer. Landlords should seek independent legal advice when performing this transfer.
Owner-occupiers of a residential property can claim a stamp duty refund when they sell their BTL property to a limited company. This stamp duty refund is 3% of the purchase price of the residential property. It is essential that the BTL property sale takes place within three years of the residential property purchase to claim the refund.
When a landlord owns a BTL property via a limited company, the landlord will be recognized as a portfolio landlord. It is an encouragement to build a portfolio of properties via the limited company SPV. It will further increase the tax benefit, which results from corporation tax regulations.
There are a few drawbacks alongside the benefits when considering transferring a BTL property to a limited company SPV. One stand-out drawback is the cost.
Because fewer lenders offer that type of mortgage and the perceived level of risk is higher, lenders charge higher interest rates for limited company mortgages than for standard mortgages. The fees charged are also higher.
The limited company mortgage application process is time-consuming. It takes relatively more time than a standard BTL mortgage application due to the high amount of documentation required and the legal procedures that must be adhered to. The amount of legal fees is also high for limited company BTL mortgages.
Most buy-to-let properties are not regulated by the Financial Conduct Authority (FCA).
Your home may be repossessed if you do not keep up repayments on your mortgage.