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Individual or company - tax and mortgage


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I have a pot of money to start investing and I am currently looking at either cash purchases to refurbish, re mortgage, and rent or just straight immediate rental properties that I would purchase through a buy to let mortgage.

I currently work in a job that makes me a higher rate taxpayer. However in 6 months time I will leave this job and potentially have no or little income (I would definitely be a lower rate tax payer even with rental income).

My question in with regards to securing a mortgage, tax, and deciding whether I purchase properties through a limited company or as an individual. My initial concern is not tax but securing a buy to let mortgage. If I get to a stage whereby I have no earnings and I am trying to get a buy to let mortgage will I struggle? Of course for me personally there are a lot of benefits purchasing properties as an individual not a limited company due to my income situation. However, if I need some proof of earnings it would make sense to purchase through a limited company, put my wife as a director of the company (who is a higher rate taxpayer) and secure a mortgage that way.

Rates are obviously much better buying as an individual. My tax situation would also mean it would be beneficial to purchase as an individual. However I am just concerned about my future income and securing a mortgage or a number of mortgages?

Any advice on how you think is best to proceed in my situation? As a caveat would it make sense to try and secure my first buy to let mortgage whilst I am still earning in the next 6 months? Would that then help me secure mortgages as a 'experienced landlord' in the future regardless of my income situation?

Any help would be much appreciated.

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  • 1 month later...

I was in the same position. I received contradictory advice from two reputable broker firms. Put yourself in the lenders position; would you lend to a person with no regular income?

Let's just say you had income from a BTL (regardless of individual or Ltd/SPV), lenders would like to see a trading history before lending.

It's not impossible to get a mortgage, your options are just limited (though I'd love to be proven otherwise).

Good luck!

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A few layers to your questions, I will try and cover some of them. 

When you say your income is due to cease in 6m, is this by choice? Are you going to be looking for another job afterwards?

Based on Now, in theory you could apply for a mortgage today as you are currently earning however a lender would expect you to be up front about any future changes to your financial position. Declaring total loss of your income a few months away will likely make lots of lenders back out. 

All lenders have criteria which is built around their appetite.
Certain lenders don't have a minimum income criteria - that said they will still look at a deal and make sure it is affordable and the request is reasonable)
Certain lenders will for example specify landlord experience so if you haven't got any this reduces who is willing to assist. 
This is where a good broker can add value by knowing the lenders who are willing to work with your position. 

You mention your wife who is a higher rate taxpayer... If you are investing jointly, even with loss of your income in 6m, if it fits on your wife's income alone then obtaining a joint mortgage to start investing in BTL is still viable. Once you start building a portfolio you can then evidence experience for future applications and also will have some rental income to include into the assessment. 

The above will apply regardless of individual vs Ltd co setup.. Ltd company mortgages can be more expensive than individual rates but then companies have the benefit of more favourable tax treatment. You would need to sit down with your tax adviser and work out the best way forward on your whole circumstances. 

Appreciate this advice is rather generalised based on limited info that you have shared. I do think you may have some options and would be happy to discuss further with you if you want to reach out. Contact details are below. 

Regards
Kirsty 

 

 

 

Property investor ¦ Commercial Finance Broker ¦ Ex banker/underwriter with over 20 years lending experience. 

Commercial Lending Manager at Real Finance Ltd - www.realfinance.co.uk
Happy to discuss any queries regarding property finance for  Company/Complex BTL, HMO, MUB, Holiday Let, Commercial, Bridging & Development.  

kirsty@realfinance.co.uk
07494949852

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