Updating post from Reddit.
Hi everyone,
I'm seeking advice on a situation involving my current residential property and a potential new build purchase. Here’s a breakdown of my situation:
I currently own a residential property that, according to online valuations, is worth approximately £270,000.
The outstanding mortgage balance on this property is £175,000, so I have around 45% equity in it.
Now, I’m looking to buy a new build house, but I'm aware that the stamp duty for a second home will add significantly to the costs. After reading up on potential solutions, I came across the idea of converting my current home into a buy-to-let under a limited company to possibly avoid some of the stamp duty complications. However, I have a few key questions and would really appreciate any advice from those who have gone through this or have experience in the field.
Since I don’t have a deposit readily available to fund the limited company purchase, I’m wondering whether any lenders out there would consider the 25% equity I already have in the property as part of the deposit requirement for the limited company mortgage? Has anyone successfully done this or know of lenders who allow this type of arrangement?
I’m also keen to understand how long the entire process typically takes from start to finish when converting a residential property to buy-to-let under a limited company:
I already have a business bank account and the limited company is set up.
Once I apply for the mortgage under the limited company, how long does the mortgage approval process generally take? Are there additional delays since I’ll effectively be selling the property to my own limited company?
What kind of timelines should I expect from initial application to completing the transfer?
Can anyone recommend solicitors who specialize in limited company buy-to-let transactions and who offer good value for money? I’d love to hear about affordable and reputable solicitors who handle these types of transactions efficiently.
I’d appreciate any advice or recommendations based on your experience. It’s quite a complex process, and any guidance on making it as smooth as possible would be really helpful.
Thank you in advance!
>any lenders out there would consider the 25% equity I already have in the property as part of the deposit requirement for the limited company mortgage
Yes - In order to purchase a property through an LTD Company, you'll need as little as 15% equity, but those are expensive, so sticking to 25% or more is a good idea.
Yes, the company can use the equity, but we typically structure it differently, but it means the same thing.
On the deposit, the typical process involves your accountant stating on returns that you (the individual) have loaned the deposit amount to the company. This approach is tax advantageous and is accepted by all the LTD Company mortgage lenders I know.
>how long does the mortgage approval process generally take
With a good mortgage adviser rather fast, think weeks instead of months. The slow part is typically the conveyancing and legals, but given your buying form yourself, that should be quick.
However, you can take your time with it, you will have 3-6 months before the mortgage expires, and you have to start again. So don't feel rushed (if you havent found a new home yet for example).
You will also need a Gas Certificate, Electric Certificate, and EPC certificate and have the house in good rentable condition.
>an anyone recommend solicitors who specialize in limited company buy-to-let transactions
Your mortgage adviser will recommend a solicitor. Our company usually recomend with Blacks or JMW, depending on their case levels. They are on most (if not all) lender panels lowering costs and speeding up the process.
Can you please advise of mortgage advisor/ company who specialise, happy to discuss it as I am interested taking this route.
My colleagues at Cyborg Finance on 08009202001 or [email protected] would be happy to help.
> I'm aware that the stamp duty for a second home will add significantly to the costs. After reading up on potential solutions, I came across the idea of converting my current home into a buy-to-let under a limited company to possibly avoid some of the stamp duty complications.
I'm no expert on Tax. I dont think the maths will work out.
If you SELL your residence to a LTD Company, the company will be paying SDLT+3% on £270,000. Then you buy your residence you will be paying SDLT on that value also.
However, if you just buy a new residence you dont pay SDLT again on your current residence but only SDLT+3% on your new one.
The tax advantages for having BTL in LTD Company, is more on the income side. As you can retainn the profit in the LTD Company (not increaseing your personal taxation) and re-invest that money into more BTLs or pay down the mortgage on this one.
Confused 🤔 Selling to LTD why should be the seller paying SDLT, i thought it's the buyer or ltd company which will need to pay SDLT, confused
The seller doesnt pay SDLT but you are doing two transactions no? Your buying a property and your company is buying a property.
You are buying a new home (so SDLT, your not a First Time Buyer so wont have exceptions).
Then the LTD Company is buying your current home, so it pays SDLT also.
But he won't be buying an ADDITIONAL property, as the Ltd will own his current property. So he won't have to pay the surcharge on the new build being bought in his name.
It's still an "additional property" putting existing in an LTD company is not a loophole; they made sure of that.
However, you the end result of what you say is right.
Scenario 1 -
You can only claim the "it's my home" exception for one property at a time. If he sells his current home to an SPV and pays the Stamp Duty Land Tax (SDLT) plus 3%, he will no longer have that exception on that original property. Consequently, the new home purchase would be subject to the standard SDLT rate.
Scenario 2 -
If, however, he keeps the property in his name, the 'exemption' applies to that property. Therefore, any new purchase would be considered an 'additional property' and would incur a 3% SDLT even if they plan on living in it.
Caution -
Sure, in Scenario 2, he's paying 3% on the home, which is not ideal. However, it could be better than Scenario 1, in which he's paying SDLT + 3% via the SPV and normal SDLT on the residence.
I'm happy to be corrected but I'm rather sure this is how it works.
Thanks.
I may be wrong but it looks like SDLT will be cheaper through LTD route, coz LTD pays 3% on 270k which is around 8k + i pay normal standard SDLT (as I have sold my existing in my name) on 450k, which should be around 10k, not sure if it's considered as moving home, or first time buyer stamp duty.
Compared that to it I keep my property as is or move to normal buy to let , it will be considered as second home when I buy the new build ,where the SDLT will be standard+ 3% on top , so for a property around 450k it will be around 24k approx.
It's good to do the calculations like you have, that makes sense to me.
The Ltd Company will still need to pay SDLT at the additional rate
>any lenders out there would consider the 25% equity I already have in the property as part of the deposit requirement
In order to purchase a property through a LTD Company, you'll need as little as 15% equity, but keep in mind that mortgages for this type of purchase can be expensive.
On the deposit the typical process involves your accountant stating on returns that you (the individual) have lent the equity amount to the company. This approach is tax advantageous and is accepted by all the LTD Company mortgage lenders I know.
So your LTD company (setup) is buying your £270k home so you avoid additional stamp duty on your next primary residence?
How much you saving?
Considering your other replies, you have not included the stamp duty payable when your ltd company buys from you. All Ltd company purchases pay the additional stamp duty.
So you saving is the 3 % on the difference between the purchase price of your ltd company and the purchase price for your primary residence?
You’re going to need to pay additional stamp duty!