Many business owners will have significant cash reserves built-up in their business, sometimes enough to get a mortgage or purchase a home outright.
It’s understandable that company directors will often look for ways in which they can legitimately use this money in their limited company to help finance a house purchase. But there are many facets to consider, including whether you can get a mortgage through your limited company or not.
In this short guide, we will answer some the most common questions company directors ask about how to buy a house through their business.
Need Quick Advice? Before you get started though, by just answering 5 simple questions you could be on your way to getting decision in principle. Our advisors are specialists at helping company directors get mortgages, and you can get started here.
Can I get a mortgage through my limited company?
It is possible for company directors to get a mortgage through their business, but it’s rare for lenders to accept an application from a limited company.
What company directors will often do instead is utilise the money in their company in order to finance a mortgage or deposit, but by using dividend withdrawals or a director’s loan. You can read more about how that works on the links below:
- Using dividend payments to help with a mortgage application
- Using a directors’ loan as your mortgage deposit
These aren’t the only ways you can buy a house or get a mortgage through a business though. Some people will actually set up a completely new limited company which is then used as a vehicle to buying property as investments.
This is how that can work…
Can a business buy a residential property?
Yes, it is possible for businesses to buy residential property. However, no mortgage lenders will let a company buy a residential property for a company director to live in.
What instead happens is that businesses are able to buy residential property that can then be used to earn a rental income.
Commonly used in the “Buy to Let” market, this method of a business buying residential property works where a director sets up a new limited company from scratch. This new limited company’s only purpose is to finance an investment property.
The company that buys the residential property is known as an “SPV”, or Special Purpose Vehicle, which only exists for the purpose of holding a property investment.
However, there are very few mortgage lenders who currently work in the market of offering mortgages to limited companies, so your options will be very limited.
When setting up an SPV you will need to ensure that you apply the correct SIC codes, these are codes that describe the type of business being undertaken. i.e. property (real estate ownership and letting).
The appropriate sic codes to describe these actions are 68100 and 68209. Most people who set up a limited company to purchase residential property do so because of potential tax advantages.
It is therefore really important the anyone doing this speaks to a qualified tax adviser before proceeding.
If you would like to find out more about how this could work for you, contact us to find out more. Our specialist mortgage advisors have access to lenders in the market who are prepared to work with limited companies in this way.
Is it better to buy a property through a company?
The answer here is that it depends.
As mentioned earlier, there are few lenders who will be prepared to offer a mortgage to a limited company. Due to the lack of competition in the market, it can mean that mortgage rates and deals tend to be higher when a company buys a residential property for buy to let.
However, that doesn’t mean it’s not necessarily right for you to buy a property through a company. For example, your business might have large cash savings which could be invested in houses and flats.
Pros to buying a house through a company
Here are some very quick reasons why it might be better to buy a property through your company, followed by some negatives to consider.
- You could save on corporation tax: Rental income profits on a house purchased through a limited company won’t be taxed on your earnings as an individual, but instead taxed through the company. Of course, you will still be taxed further down the line when withdrawing profits as dividends though.
- Possible inheritance tax benefits: You will need to talk with a financial advisor, but as at time of publishing this guide, it was possible to take advantage of tax differences when property is held in a company.
Cons to buying a house through a company
It’s not all good news though, as there are downsides to buying property through a business too, including:
- Mortgage deals aren’t as good: Limited companies won’t have access to the whole of the mortgage market and the rates that individuals will have.
- You will pay tax eventually: Whilst you won’t be taxed at the point of the profits from rental income, you will do once you decide to withdraw money from your business as dividends.
How to buy a house through your business
If you do want to buy a house through your business as an investment, you should talk with your accountants and a tax advisor.
Once you have done that it’s important to then contact a specialist mortgage advisor who will be able to help you navigate through the complexities of finding the right lender.
As previously mentioned, not many lenders will work with a limited company buying a residential property, but some will. Contact our advisors for support with this.
What to do next?
So yes, a company can buy a house for a director but unfortunately not one that you will be able to live in yourself.
If you are a business owner struggling to understand your best course of action with regards to mortgages, please do read our guide to company directors and mortgages.
For quick advice over the phone, or via an email, please get in touch with us using the various methods listed on our website. Our initial consultation is free and will help you decide which route you want to take.