Ask the experts – Buy to Let Mortgage Advice

Question
I am a regular reader of What Mortgage monthly magazine. My wife and I have two buy-to-let properties and are in the process of acquiring another property. We have buy-to-let mortgages on both properties from the same lender. At the present moment the properties are managed by the estate agent for repairs and rent collection. I was wondering if it is possible to transfer all the properties from our joint name into a limited company status. I would like to know:

  • Will the lender allow us to transfer the properties to a limited company?
  • What tax implication will there be?
  • What is the process for transferring the properties into a limited company?
  • Do you think I should consult my accountant?

Your advice would be appreciated.

Answer
I assume that the reason you are asking these questions is because the tax relief that residential landlords get on finance costs, including mortgage interest, will be restricted to the basic rate of income tax (20%) regardless of the landlord’s actual tax bracket. This change is being phased in from 6 April 2017. Further, and perhaps crucially, finance costs will no longer be deductible before calculating taxable profit.

This means that many landlords will be worse off. Some may go from profit to loss. Even basic rate tax payers could find that the changes will take them into the next tax bracket – with dire consequences.

As a result, many landlords have discovered that they would be better off owning their properties in a limited company structure, usually a Special Purpose Vehicle (SPV). Here at Mortgages for Business, 63% of our landlord customers are now making new purchases via a limited company, and, increasingly they are moving the properties they already own across too.
However, it is very important to note that there is no process for transferring personally owned properties into a limited company. Instead, each property must be sold at open market value which will incur all the usual costs of sale including remortgaging, stamp duty (plus the 3% surcharge) and potentially capital gains tax.

To find out where you and your wife stand in all of this, I urge you to consult your accountant or a professional tax adviser as a matter of urgency.

If you discover that incorporation is the best route for you, you’ll be pleased to hear that there are now more than a dozen lenders offering between them some 200+ buy-to-let mortgages to limited company borrowers. Do get in touch if you need help finding products to suit your particular situation. Your existing lender may or may not be the most appropriate solution.

Setting up a limited company is fairly straightforward, costs around £15 and can be done online at Companies House. If you are unsure, get your accountant to do it for you.

Question
I’m interested in buying a property abroad – maybe in France. Can I let out my current home in the UK and use the funds to purchase a new home in France?

Answer
I presume you are asking if you can refinance your home onto a buy-to-let mortgage and raise capital to assist with the French purchase. In principle “letting to buy” is fairly straightforward but only when the borrower remains in the UK. In your case, it will be harder to find a lender for two reasons:

  1. Lenders are not keen on borrowers moving overseas because if they needed to repossess the property, it would be more difficult to facilitate.
  2. Lenders like to see the onward purchase to make sure you will not be remaining in the house. This will be more difficult for them on an overseas property transaction.

Do get in touch if you need help, as there are a few lenders who might be willing to take a view.

Question
My wife and I have £10,000 left to pay on our mortgage and the value of our home is £250,000. Our son is going away to university. We were thinking of buying a second home for him to stay in. Should we get a buy-to-let property or should we get a residential mortgage in his name? He’ll rent it out to other students and work part-time. Would we have to act as guarantors?

Answer
That’s quite a lot of equity. The easiest solution, although not necessarily the cheapest, might be to remortgage your home and buy the second one with cash – if funds allow. In this case you would be free to rent out rooms to whoever you wanted, although you would be liable for the 3% stamp duty surcharge on the purchase.

Alternatively, you could raise the deposit for your son by remortgaging your home and act as a guarantor for his residential mortgage. This means you would become responsible for either a part or the whole of the debt if your child were to default on the mortgage payments. The upside is, that you will not be liable for the extra stamp duty because the property would be in your son’s name.

Guarantor mortgages require careful negotiation as lenders have a variety of differing criteria which must be met, and you’ll need to find one that will allow student lodgers too. There are some lenders who will do this so do get in touch to talk through the options.