Limited Company Holiday Let Mortgages
Are holiday let mortgages available for Limited Companies?
Limited Companies and Special Purpose Vehicles (SPV) are able to own a holiday let property financed with a mortgage. We are frequently asked about this growing trend but it is not the right course of action for everyone.
Using a company to purchase an investment property has been used within the buy to let and commercial sectors for many years. For the most part these companies have been used to grow portfolios for experienced property investors.
More recently this model has been adopted by individual landlords who wish to regain the ability to offset all of the buy to let mortgage interest, since this was removed by the Section 24 legislation.
Now we are seeing a considerable increase in the number of enquiries for a limited company holiday let mortgage.
So should you buy through a limited company or in your own name?
It depends…
There is no straightforward answer to this question as it depends on your personal situation and what future plans you may have.
Some recent research uncovered that over 80% of newly formed SPV limited companies are only holding one holiday let investment property. It’s not always advantageous to own just one property in this way, mainly because of the costs of setting up and running the company.
Many investors choose to use a limited company just so that they can offset the full amount of mortgage interest.
Until April 2025
Properties that qualified as a Furnished Holiday Let (FHL) were permitted by HMRC to claim 100% of the mortgage interest paid, even when owned by an individual.
Since the UK government abolished the FHL status, the only way to get back the ability to fully offset mortgage interest is by using an SPV company.
Why do people buy properties through a company?
People choose to hold property within a company structure for many different reasons, but the primary reason is usually to save tax.
Here are some other advantages:
Tax
For a higher-rate tax payer the limited company environment is generally better from a tax point of view.
Timing
When your company declares a profit you can decide when, and if, any of that profit gets paid to you as a dividend. This enables you to manage your income and personal tax liability.
Business Rates
A holiday let will often be subject to business rates instead of council tax, which is a lot cheaper.
Dividends & Profits
The profits of your business are liable to corporation tax which needs to be paid each year. But what you do with that after tax profit is up to you. If you want to take some money out this is usually as a divided and you can decide when this happens to reduce your personal tax. If you leave some or all of the profit within the company there’s no further taxation and this can then be used to purchase more houses, building the portfolio in a very tax efficient way.
Succession Planning
A limited company is owned by its shareholders, each holding a certain number of shares. This structure will allow you some control over future ownership and succession planning, possibly by gifting shares to children and family members.
Separation of Assets
The assets and liabilities of the company will be separate to your own. This provides a degree of separation and a reduction in risk for your personally owned property and savings.
It is important to know that most lenders, at least initially, will require a personal guarantee from the company directors.
Creating a Property Business
By leaving profits within the company you can accrue further funds which can go towards future property acquisition. There’s no personal tax to pay as the money did not leave the company.
At some point in the future you could then decide to sell the company, with the properties still held as a portfolio. This may have further tax advantages for you and stamp duty savings for your buyer.
Take Professional Advice
Please remember to take professional advice before taking any action regarding setting up a company or purchasing property.
We would recommend speaking to an accountant to discuss tax and the advantages (for you) of utilising a limited company structure.
There will be annual fees to pay for the accounts and some formal record keeping.
An independent mortgage broker can also help by explaining what mortgages would be available.
There are many lenders who are happy to grant a mortgage to a Ltd company but not all lenders accept them and some only work with brokers.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
How do you set up a company?
If you are self-employed you may already have a company that you trade under. Unfortunately, this is not acceptable to many lenders as they prefer not to deal with a ‘trading business’ limited company.
You will need to set up a Special Purpose Vehicle company, also known as an SPV. These are still a normal and proper limited company but are designated as an entity that only owns and manages property.
SPV Guide
Our Guide to SPV Limited Companies covers Special Purpose Vehicles in a lot more detail.
We explain how they work and what’s needed to run an SPV company.
Setting up an SPV
We look at how to set up a new limited company SPV for property investing.
What information is needed to register a new SPV and how much does it cost?
Good to know
In setting up a new company it’s important to make sure that the arrangement will be acceptable to a wide range of mortgage lenders. Your holiday let mortgage broker will be able to provide some guidance on this.
In brief:
SIC Codes
When you first set-up a company at companies house you will need to choose the most appropriate SIC codes that best match your business purpose.
We explain SIC codes in more detail here.
Mirroring
Mirroring is when the company shareholders are the same as the company directors.
There are some lenders that will accept variations on this but if possible keep them the same for maximum choice.
Layering
Layering is when the Special Purpose Vehicle Limited Company is itself owned by another company. This group structure is disliked by most lenders as it muddies the ownership.
Wherever possible the SPV should be in your personal ownership and correctly mirrored.
If there is a particular need to deviate from the above guidance then please discuss this with your broker at the earliest opportunity. This will allow them some time to investigate your options and speak to individual lenders.
how do Portfolio Mortgages work?
A portfolio mortgage could be worth considering if you own four or more investment properties. By placing all of your properties under one mortgage facility you will streamline your finances and admin time. Read on to discover how portfolio mortgages work and how they can benefit portfolio landlords.
The Mortgage Deposit
As we have covered above, this strategy means that it is the SPV Company who will own the property and also apply for the mortgage.
Property Owner
SPV Company
Mortgage Holder
SPV Company
Consequently the SPV will need to provide the deposit for the property purchase. Typically for a holiday let this will be a 25% deposit with a 75% loan to value mortgage.
How do you get funds into the SPV?
If you have just incorporated (set-up) your company then it will have no money 🙁
A limited company, and it’s directors, needs to adhere to certain rules and regulations and this includes putting money in and taking money out of the business bank account.
DIRECTOR’S LOAN ACCOUNT
At this early stage the most popular option is to create a Director’s Loan Account.
The option of a director’s loan applies equally to an SPV or trading limited company. The directors will simply loan the company sufficient funds for the property purchase, which will also need to cover related fees and expenses.
Directors can put in different amounts and it’s simply a matter of transferring money into the business bank account. The loan will be registered by your accountant and shown within the company accounts.
As it is your loan and your SPV, you can decide when to repay it and whether any interest will be charged to the SPV.
RETAINED PROFITS
At the end of each financial year your accountant will draw up the company accounts for the SPV. Any profit available after tax could be paid out to the shareholders as a dividend payment. This may incur a personal tax charge for each shareholder.
However, these profits do not have to be distributed, or paid out. You can leave some or all of it for use at a later time, this is then called retained profits and will be shown within the business accounts.
These funds can be legitimately used to fund the deposit and costs of purchasing another holiday let investment property in an extremely tax efficient way.
Can a new SPV get a mortgage?
This is a commonly asked question, and the answer is yes.
Holiday let mortgages are available to SPV limited companies as soon as they are incorporated. There is no requirement for a trading history or minimum time established.
However, you will need to ensure that everything else is set-up correctly such as the SIC Codes and a new company bank account.
The lender will not proceed without these being present and correct.
Arranging a mortgage
When combining a holiday let mortgage with an SPV limited company we would recommend seeking advice from a holiday let mortgage broker at the earliest opportunity.
There is quite a bit of investigation and checking needed before you get to the point of being able to apply for a mortgage. Your adviser will need to see that the SPV company is set up correctly and in a way that meets the lender’s requirements.
The new company should have a live business bank account and the source of the deposit and how it is to be introduced into the company needs to be validated.
There’s a good choice of lenders offering a limited company holiday let mortgage and really good preparation will make sure you have the widest possible choice.
FAQ
Frequently Asked Questions
Is stamp duty still payable?
Yes, there is no change to the stamp duty position and the surcharge still applies.
Will the lender need a Personal Guarantee from me?
Probably. Most lenders ask for PG’s with a limited company mortgage.
Can I have an interest only mortgage?
Yes. The normal choice of repayment and interest only is available.
Do I need to use a mortgage broker?
No, but it will be a lot easier with the help of an SPV mortgage broker.
How much deposit is needed?
The required deposit is usually 25% of the property price/value, so the loan to value maximum is 75%.
