Is Ltd company status good for someone who is not a higher rate tax payer

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    Is Ltd company status good for someone who is not a higher rate tax payer

    Hi, I have a relative who is a lower rate tax payer but is with a friend in a Ltd. property development company. They have converted a house to 3 flats and now seem to need an SPV and need to get a mortgage on those flats to raise funds. There seem to be so many hoops to jump with Ltd company status and getting mortgages is so expensive compared to normal BTLs.

    Also can you tell me if it is cheaper to get an MUFB or individual mortgages on two of the flats to raise the funds? Does an MUFB require leases on the flats? Thank you.

    #2
    Let’s take your questions in reverse order

    Yes it is mandatory that if the flats are to be mortgaged separately that each has its own lease whereas raising a single mortgage on the building then that is not necessary as the charge is placed over the entire Freehold Building.
    There is an assumption that Ltd Co mortgages are very expensive compared to those for private individuals ,yes they are slightly higher but not significantly.
    Anyone considering borrowing via an SPV Company should consult with a Chartered or Certified Accountant to establish what are the true financial benefits of such borrowing against personal borrowings, certainly what can be charged against rental income is presently a major consideration but there is no guarantee that this will remain the case going forward ( I am not a crystal ball gazer) Do Not rely on so called experts who are not qualified accountants , even as a broker I am not permitted to utter such advice even though I understand the pros & cons.
    If you intend to retain two flats and sell the third might require you to source two lenders since there is a reluctance for any lender to have such an exposure in a single building but a good mortgage broker experienced in Buy to Let can provide advice.
    I hope the above helps.

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      #3
      If a house is purchased under a freehold title by a Ltd company and subsequently converted into 3 flats, the property becomes a MUFB ( multi-unit freehold building ) if remaining under the same freehold title.

      The Ltd company seeking a loan will find interest rates are much higher because there are fewer lenders offering business loans to limited companies in property development . The Lender will take the freehold title as security for the loan.

      Flats in England and Wales must be under 99 or 125 years long lease to qualify for a mortgage loan because the Council of Mortgage Lenders requires individual flats to be under a maintenance contract which is satisfied by the long Lease. The lender will take the leasehold title of the flat as security for the mortgage loan . Some lenders may only lend on one flat in the building to reduce their risk .

      There is a much larger market for sale of leasehold flats and many more lenders offering residential mortgage loans at lower interest rates to buyers.

      So if the Ltd Company continues in property development, then you probably need hold the leasehold flats under another company to benefit from lower interest rates.

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        #4
        Thank you for your replies.

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