Mortgages For Ltd Companies

[Guest_growlers_*]

I found this interesting. Fleshes out the options available.

I wasn't aware that you could offer personal guarantees on mortgages secured on property owned by a Ltd. I suppose that this arrangement is designed to circumvent the limited liability nature of a company and allow the lender to secure claims on the ultimate owners other assets in the event of default. Presumably, such an arrangement would enable the lender to offer comparable rates on mortgage lending to a Ltd. as it would to an individual. The risk to the lender would be equivalent.

The one question I had was, would HMRC take a substance over form view of this? i.e. would they look at an Ltd containing a property portfolio and mortgages, with mortgage guarantees secured on the ultimate shareholders other unincorporated assets (and future income of the individual) and think for all practical purposes this individual is operating as an unincorporated arrangement. The whole arrangement is clearly designed to minimise tax and for no other reason.

If lenders can square this off, I suspect we will see corporate BTL packages aimed at the general public become more widely available. It would just be an extra form to setup a new off the shelf company and bank account.

The other question I had was, if this arrangement took off, would it be killed off quickly by the government through changes to the corporate tax code?

http://www.propertytribes.com/mortgages-for-ltd-companies-t-127621679.html

The recent shock announcement from George Osborne has created much frenzy amongst portfolio landlords and especially higher rate tax paying property investors. New surveys have been conducted, petitions to government have been arranged, letters to MP’s have been written, accountants and advisers have seen a significant surge in enquiries for new Ltd Companies to be set up for borrowing /property owning purposes, and in the world of financial services there has been huge ‘behind the scenes’ activity from lenders and Brokers alike to (re)structure appropriate mortgage deals for ‘non individual’ borrower entities.

So, what is the mortgage market like for a Ltd Company (or LLP, or SPV’s, or a Trust) borrower?

Not many ‘high street’ lenders will consider such a case, albeit some will, but it does mainly seem to be the remit for the commercial lenders and challenger banks at the moment to provide the funding solutions. And of course, every case is different, so not all deals are the same and can vary depending on the structure of the borrower and the age of the Ltd Company / SPV.

Firstly, are there BTL mortgages for Ltd Company borrowers? – YES!

For many property investors whatever the size of their portfolios, the tax benefits of buying property through Ltd companies can be significant, particularly for higher rate tax payers. Ltd company mortgages are also useful for joint venture projects too.

New and Existing SPV’s

Companies that operate only in rental property are recognised as Special Purpose Vehicle (SPV) Limited Companies and they can be classed in different ways by lenders. Companies House issue Standard Industry Classification (SIC) codes and these include:

7012 – Buying & sell own real estate,
7020 – Letting of own property, or
7032 – Manage real estate

It’s all about risk. For a brand new company, there is no trading history or track record on which a bank can base their decision to lend and this is a particular situation where personal guarantees from Directors will definitely be required making the directors personally responsible. Additional security may also be required, including equity in other assets and properties, for example.

Limited company mortgages for an existing company

Arranging a mortgage can also be challenging even if you already own a Ltd Company and are looking to either purchase or remortgage a property.

If the company already owns several properties, certain lenders do have limits on the amount of mortgages each borrower / Ltd Company can have.

The good news however is that there are lenders who will accommodate professional landlords with requirements for mortgages for portfolios, and we have access to them.

So, what is actually available? Mortgages for …..

• an existing SPV Ltd company
• an existing trading Ltd company (Not an SPV)
• starting up a New ltd company at the time of purchase
• Ltd Companies - with personal guarantees (PGs)
• Ltd Companies - without personal guarantees (PGs)
• up to 85% loan to value (LTV) on single or multiple properties

If George Osborne has now influenced you to arrange your future purchases in a Ltd Company name, or you’re now considering switching your individually named mortgage arrangements in to an SPV, a Ltd Company, an LLP or Trust, speaking with a tax adviser is crucial as is working with a professional mortgage adviser too.

The team of Brokers who provide the mortgage advice service at Property Tribes Financial Services has helped many Ltd Company property investors to review their mortgage portfolios and where necessary arrange new deals for single properties, or their HMO’s, or multi units, or large portfolios, for both individuals and corporate entities, over many years.

Even though the new tax regime doesn’t start until 2017, property investors are planning and implementing new strategies now. Can we help you too?

At Property Tribes Financial Services, you can access tailored options for bridging, short term lending, commercial mortgage & BTL solutions, sourced from a huge range of banks, building societies and specialist lenders, via a team of industry award winning Advisers. We also provide a full financial planning service for residential mortgages, life cover, wills and estate planning.

T: 01206 654 444
E: advice@PropertyTribesFinancialServices.com
W: http://www.PropertyTribesFinancialServices.com

[ARIMA]

I would have thought that if you incorporate and take all the complications that go with that, then you are in the clear, but anything is possible I suppose.

[dgul]

I found this interesting. Fleshes out the options available.

I wasn't aware that you could offer personal guarantees on mortgages secured on property owned by a Ltd. I suppose that this arrangement is designed to circumvent the limited liability nature of a company and allow the lender to secure claims on the ultimate owners other assets in the event of default. Presumably, such an arrangement would enable the lender to offer comparable rates on mortgage lending to a Ltd. as it would to an individual. The risk to the lender would be equivalent.

The one question I had was, would HMRC take a substance over form view of this? i.e. would they look at an Ltd containing a property portfolio and mortgages, with mortgage guarantees secured on the ultimate shareholders other unincorporated assets (and future income of the individual) and think for all practical purposes this individual is operating as an unincorporated arrangement. The whole arrangement is clearly designed to minimise tax and for no other reason.

If lenders can square this off, I suspect we will see corporate BTL packages aimed at the general public become more widely available. It would just be an extra form to setup a new off the shelf company and bank account.

The other question I had was, if this arrangement took off, would it be killed off quickly by the government through changes to the corporate tax code?

http://www.propertytribes.com/mortgages-for-ltd-companies-t-127621679.html

A limited company is a stand-alone legal entity - a bit like a person really. The only exception I can think of is the IR35 rules (about employment) - but even this is more about the employment/employer rather than the company (that is, it is the employer's fault, not that of the limited company). I suppose if HMRC wanted to they could encourage a change in tax rules, but this would affect many other companies so might be complicated.

[Greg Bowman]

I would have thought that if you incorporate and take all the complications that go with that, then you are in the clear, but anything is possible I suppose.

Normal stuff a limited company is just a £100 shell but very useful as a vehicle as the company grows the guarantees are usually transferred to the assets of the business or onto the growing equity within the property unless of course you run a real business like BTL where anything seems to go.....

[pipllman]

I haven't heard of a case where a Director / Shareholder standing PG has been treated as a tax avoidance measure

It isn't a step to be taken lightly - being Director and shareholder of a property business is very different from being an individual landlord in many ways, some of which probably make the lost tax relief a price worth paying to avoid in certain circumstances

Remember too that whilst a company can indeed offset all its finance costs against corporation tax on its profits, it can only do so at the corporation tax rate (which is 20% reducing to 18% in the coming years).

Shifting the portfolio into a company does not offer the magic wand solution that some BTL seem to think it does.

It will be the right thing for some to do.

One might even expect a few more orange blobs to appear on the private eye map as some more creative incorporation based solutions are sought. I am quite sure that there are lenders out there in the wider world that will offer debt secured on UK property and the beneficial owner's other assets more readily than many UK lenders would.

[porca misèria]

Once upon a time, I looked into a similar option.

The scenario: I was looking at a property that was formerly a village post office with a flat above. So I (working from home) could've lived in the flat and worked downstairs in the former PO. Thus, I structure the purchase so that I own the flat and my company owns the PO. It's tax-efficient, because the company's stake comes from untaxed money.

It could've worked. Except, given that the property also needed quite a lot of work done, it was more than I could afford at the time. The bare price was already around my limit, and some of the mortgage would've been held back until some of the works were done.

[Bland Unsight]

Of course, Basel III will probably kick the interest rates on these loans to a risk-weighting of 100%, (or possibly 110%), and possibly at some point next year. Be a bit of a shame to go to all that trouble, including paying the CGT that arose on the transfer of the ownership of the properties to the company, only to find that you were now going to be bankrupted via the mortgage rate channel instead of the taxation channel.

If you want a more robust problem solving approach, consider selling everything, now.

Edited September 5, 2015 by Bland Unsight

[Guest_growlers_*]

If you want a more robust problem solving approach, consider selling everything, now.

For the absence of doubt, this thread isn't related to my personal situation. I have nothing to sell...except my labour.

My interest is whether the flow of BTL mortgage approvals will dry up. Is the channel closed?

I had assumed that corporate lending would not be viable (ignore Basel 3 for the time being) because of the increased lending cost (due to LL) but if lenders / brokers could structure an 'off the shelf' package with guarantees for consumers perhaps it might be viable for new BTL entrants to enter on similar terms to existing arrangements. Obviously the CGT / cost of mortgage renegotiation is an issue for historic BTLers.

If this were the case, then the budget announcement would be more of a housing shock rather than a fundamental change to the structure of the housing market (ignoring Basel and pending BoE regulatory changes obviously).

Edited September 5, 2015 by growlers

[dgul]

Remember too that whilst a company can indeed offset all its finance costs against corporation tax on its profits, it can only do so at the corporation tax rate (which is 20% reducing to 18% in the coming years).

Funny way to put it - the corporation can offset all costs against income and only pays CT on the profit (at 20%). eg, income £1M mortgage £900k corp pays CT on £100k, so pays £20k tax - person with same income/mortgage pays income tax on £1M (say £450k for ease of calc), but will (in 2020) only get a relief of %20 of mortage costs (£180k) so will have a tax bill of over £200k.

[this exclemplar person is, of course, screwed, as their tax bill will be >> than their income - but they might be able to sell or transfer into the co. structure if they haven't been too stupid with debt on the way in]

[Guest_growlers_*]

Remember too that whilst a company can indeed offset all its finance costs against corporation tax on its profits, it can only do so at the corporation tax rate (which is 20% reducing to 18% in the coming years).

True but most BTlers don't make any profit.

[CunningPlan]

Funny way to put it - the corporation can offset all costs against income and only pays CT on the profit (at 20%). eg, income £1M mortgage £900k corp pays CT on £100k, so pays £20k tax - person with same income/mortgage pays income tax on £1M (say £450k for ease of calc), but will (in 2020) only get a relief of %20 of mortage costs (£180k) so will have a tax bill of over £200k.

[this exclemplar person is, of course, screwed, as their tax bill will be >> than their income - but they might be able to sell or transfer into the co. structure if they haven't been too stupid with debt on the way in]

True. But you will still pay more tax when trying to get that out from the company into your own grubby little pocket.

Also, any MEW proceeds would be expensive to get your hands on. Way more complicated than the sole trader position used currently.

Is there a reason that no-one is looking at the LLP option?

[Guest_growlers_*]

True. But you will still pay more tax when trying to get that out from the company into your own grubby little pocket.

Also, any MEW proceeds would be expensive to get your hands on. Way more complicated than the sole trader position used currently.

Is there a reason that no-one is looking at the LLP option?

I wondered about partnerships too.

[Bland Unsight]

My interest is whether the flow of BTL mortgage approvals will dry up. Is the channel closed?

That's a legitimate question. I think the answer is yes.

The days of bonkers Wilsons and Kevin Green style 500+ portfolios are gone. It's a three or four properties at most for new entrants. As BTL is being 'marketed' as an alternative to cash, shares and bonds it's a big ask to mug investors to expect them to incorporate! And CunningPlan makes an excellent point, with MEW (cash out refinancing) it was so easy to suck capital gain out of the investment property. That process will be hugely complicated by incorporation.

Everything that makes BTL appeal to mug punters is undone by incorporation

For the buy-to-let sector to remain viable for new mug punters you need falling mortgage rates (looking like a long shot) and you need it to stay as simple as it was in the past. Osborne has put the boot in; if they don't incorporate then the Income Tax will get them. If you do incorporate you add materially to you carrying cost (accounts don't produce themselves) and make it much more difficult to extract your capital gains compared to the status quo ante when you called your mortgage broker, signed this and that and then tens of thousands of pounds magically appeared in your bank account without a ledger entry or corporation tax return so much as even imagined.

For me the thing to focus on is how bonkers BTLers MEWing out capital gains was/is - it is so obviously a Ponzi scheme that it beggars belief it is 15% of new lending for purchases and 20% of the gross lending at some lenders, (e.g. Nationwide). This country is bizarre. Not pwoperdee mad but pwoperdee batshit mental.

[Even Keel]

As the owner of a small limited company (manufacturing, so plenty of stock and assets as security) I can tell you that the banks will not offer you so much as a £100 overdraft without asking for a personal guarantee from all the directors. It is standard practice and you have to play hardball if you want to hang onto your limited liability.

[Neverwhere]

For the absence of doubt, this thread isn't related to my personal situation. I have nothing to sell...except my labour.

My interest is whether the flow of BTL mortgage approvals will dry up. Is the channel closed?

I had assumed that corporate lending would not be viable (ignore Basel 3 for the time being) because of the increased lending cost (due to LL) but if lenders / brokers could structure an 'off the shelf' package with guarantees for consumers perhaps it might be viable for new BTL entrants to enter on similar terms to existing arrangements. Obviously the CGT / cost of mortgage renegotiation is an issue for historic BTLers.

If this were the case, then the budget announcement would be more of a housing shock rather than a fundamental change to the structure of the housing market (ignoring Basel and pending BoE regulatory changes obviously).

The thing is there is no point ignoring Basel III. Basel III will be fully in effect by March 2019, the risk weighting changes may be in significantly before that. George Osborne's tax changes don't come into full effect until 2020. Basel III will happen first.

In the meantime most mainstream lenders will just continue pumping out regular buy-to-let loans to ill-informed individuals who have not done their research, in the full knowledge that the requirements they impose for high deposits, small portfolios, other income and ownership of other property will ensure that they themselves make no losses on these loans. In fact they may make a killing on them once the teaser rates revert to SVRs and the tax and regulatory changes come in so their customers can't remortgage. Cue gouging.

Challenger banks and specialist lenders may expand their corporate BTL offering because they need to aggressively chase market share and so have to take higher risks. They're also likely to cause very few problems if they go bust and have to be rolled into UKAR because they don't have much, if any, involvement in the wider economy.

[Neverwhere]

From the thread in the OP:

Adam Hosker 31-08-2015,08:54 PM

RE: Mortgages for Ltd Companies

I had a descreate word with a leading btl lender and they said an outright no! No plans even after budget for LTD co''s.

There are still plenty of options though, mainly from those on outskirts such as keystone and commercial minded lenders.

ian2128038772 01-09-2015,05:16 PM

RE: Mortgages for Ltd Companies

Remember that most lenders will not land to a landlord with more then 4 or 5 BTLs. Therefore most lenders don't lend to the landlords most likely to move to a LTD.

Edited September 5, 2015 by Neverwhere

[Guest_growlers_*]

That's a legitimate question. I think the answer is yes.

The days of bonkers Wilsons and Kevin Green style 500+ portfolios are gone. It's a three or four properties at most for new entrants. As BTL is being 'marketed' as an alternative to cash, shares and bonds it's a big ask to mug investors to expect them to incorporate! And CunningPlan makes an excellent point, with MEW (cash out refinancing) it was so easy to suck capital gain out of the investment property. That process will be hugely complicated by incorporation.

I don't think it would be overly difficult for Mr & Mrs Numpty to setup and manage a BTL co. It would just be couple of extra forms. In terms of accounting records, most accounts can be done online nowadays. Some of these chumps would probably like the idea of having a 'property investment company'.

If 3/4 is max, I'd like to see a table of the distribution of BTL in terms of housing units per BTLer. I'd guess (speculation) that 4 properties would be 80% of the BTL mortgage stock with 20% for mega landlords. Nothing to base this on just a guess and I'm not sure why remortgaging would be any different under an incorporated structure (not cash out of Ltd. but remortgage to buy another BTL using equity gains).

I haven't heard a rock solid technical reason why, following the budget, the game can't just carry on through incorporation for new entrants (after the correction brought about through forced sales from unincorporated landlords).

However, perhaps incorporated BTL was just ignored and changes to the corporate tax code restricting mortgage relief on incorporate BTLs would have been brought in as well if it incorporated BTL lending was a significant piece of the BTL pie (love to see the stats on that - incorporated vs unincorporated). It could always follow if incorporated BTL takes off. It would be such an easy piece of politics to pass "tax increase on corporate investors outbidding first time buyers".

Perhaps my question is irrelevant then i.e. it might still be possible to do incorporated BTL but why would you expose yourself to that risk. Read the tea leaves. It's game over.

[Neverwhere]

...I haven't heard a rock solid technical reason why, following the budget, the game can't just carry on through incorporation for new entrants (after the correction brought about through forced sales from unincorporated landlords)...

Basel III will already be in force at that point. No reason for the big lenders to offer corporate BTL loans before then as they can continue to rinse the individual BTL market. Lenders do tend to place more stringent requirements on loans to businesses and are much less willing to offer them in general. Ltd companies can only offset finance costs against corporation tax, withdrawing money from the company will incur other tax charges over and above this.

[pipllman]

True but most BTlers don't make any profit.

It doesn't get tested often enough, but there is a notion that HMRC might take a look at a company that is trading / live but consistently making no profits.

The question being along the lines of 'What sort of bandit is running a company that is making no money year in, year out?'

[CunningPlan]

It doesn't get tested often enough, but there is a notion that HMRC might take a look at a company that is trading / live but consistently making no profits.

The question being along the lines of 'What sort of bandit is running a company that is making no money year in, year out?'

Also, if you have no profit you cannot take dividends. Anything you extract (i.e. MEW) would have to be via PAYE with employers and employees NI added. OUCH.

[pipllman]

Also, if you have no profit you cannot take dividends. Anything you extract (i.e. MEW) would have to be via PAYE with employers and employees NI added. OUCH.

Also, how much is the company CGT free allowance these days.....

[thevaliant]

The one question I had was, would HMRC take a substance over form view of this?

They can take any view they wanted, but when they've tried it in the past, the courts have ALWAYS came down very firmly on the side of the 'company' being different from the individuals owning and running it.

They have to. It would undermine the entire basis of corporate law and corporate entities if individuals could be placed in the shoes of the corporate entity instead.

FWIW, it's these sorts of setups that are precisely why firmer rules or costs should be in place for Companies. I'd introduce a higher filing fee for the annual return, a late filing penalty for the annual return and possibly even a filing fee for filing accounts. Just more 'red tape' that wouldn't stop the likes of M&S, but would stop "Joe Bloggs Limited".

[dgul]

FWIW, it's these sorts of setups that are precisely why firmer rules or costs should be in place for Companies. I'd introduce a higher filing fee for the annual return, a late filing penalty for the annual return and possibly even a filing fee for filing accounts. Just more 'red tape' that wouldn't stop the likes of M&S, but would stop "Joe Bloggs Limited".

I run a limited co. with enough profit to keep the family going - why do you want to punish me? Why is it okay for M&S to be a company, but not a small trader? The reporting requirements are quite exacting for a company, and not to be sniffed at. I wouldn't like to say that everything is fine for the current set up, but I've no idea why your idea of a solution is to crucify the small institution while hardly hitting the larger player.

[goldbug9999]

Also, how much is the company CGT free allowance these days.....

There is no such thing as CGT for limited companies. If you dispose of an asset (i.e. sell it) you pay corporation tax on any profit.

The whole limited company thing is IMO simply not workable for existing landlords as there is no tax deficient way to move properties into the company - you would have to sell it to the company incurring any personal CGT liability plus the company would as the purchaser have to pay stamp duty.

Its only really viable if you start off that way.

Edited September 5, 2015 by goldbug9999

[pipllman]

exactly - any sale that makes a profit and a tax liability arises, no £11k allowance...

also, the Directors can be liable for prosecution / penalty if they don't run the company properly

the legislation is significantly complex and I would think running a company that makes no profit is a good start to falling foul of something or other somewhere along the line

is a Director that signs her company up to massive, secured and potentially unserviceable debt (if interest rates for instance, or if there are sufficient voids) really operating with the best interest of the company as her guiding principle?