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Fees can be much higher, however. The Mortgage Works is offering a rate of 4.39pc fixed for five years, but charges the limited company a 5pc fee. The good news is, this fee is an allowable expense, which can be deducted from your rental earnings before your tax bill is calculated. 

Limited company landlords can also benefit from more lenient lending criteria because of their improved tax efficiency.

Lee Grandin, managing director of Landlord Mortgages, said: “Guidance issued by the regulator states lenders must consider the tax status of the applicant. As the tax status for incorporated landlords is perceived to be favourable lenders generally apply a lower income coverage ratio than they would if they were lending to the landlord directly.”

To be approved for a mortgage, landlords must pass an affordability test. Generally lenders insist that the rent covers the mortgage payment by 125pc if the landlord is a basic-rate taxpayer, or if they are purchasing properties through a limited company, irrespective of their tax status. 

For higher rate taxpayers purchasing buy-to-lets in their own name lenders insist that the rent covers the mortgage by 145pc.

Limited company drawbacks

If your buy-to-let portfolio isn’t already set up as a limited company, then transferring existing properties from your own name can be a costly business. 

Your limited company must purchase the buy-to-let from you, which means paying stamp duty, including the 3pc surcharge on second homes

You must also pay CGT on any gain you make after your allowance when it is sold to the company. If you’ve owned the property for a number of years, the gain could be substantial.

Extra paperwork and professional fees are another drawback. Various online companies will do this for you, or you can complete a paper form from Companies House. 

You must submit annual accounts and a confirmation statement which confirms the details of the company directors and addresses each year at a cost of £13. Submitting annual accounts and your corporation tax return can cost around £1,500 in professional fees.  

When it comes to selling properties held in a limited company, there is no annual CGT exemption amount which means Corporation Tax is payable on the full gain realised.

Nil or basic-rate taxpayers will not benefit greatly from using a limited company; ask a tax adviser to confirm which is the best route for you.  

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