Property purchase with an LLP

A business can operate as a traditional partnership or a Limited Liability Partnership and the main difference is the level of financial responsibility of the partners.

Traditional partnerships place the full burden of business debts upon the partners. A Limited Liability Partnership (LLP) is an alternative legal structure that was introduced in 2001 by the LLP Act 2000. It can be an ideal set-up for the types of professions that normally operate as a traditional partnership, such as solicitors, accountancy firms and dental practices.

The is because an LLP shares the same characteristics as a normal partnership structure in terms of tax liability, internal management and the distribution of profits, but it provides reduced financial liability, or ‘limited liability’, to each partner. The introduction of LLPs has enabled certain professions that normally operate as a traditional partnership to benefit from the reduced financial risk of a limited company while enjoying the flexibility of a partnership in terms of taxation, profit distribution and the rights and duties of partners.

Traditional partnerships have unlimited liability so all the partners are wholly responsible for all debts incurred by the business. The liability of an LLP and its members is limited to what the partners invest in and any personal guarantees put in place. Beyond this, members’ assets and finances are protected.

An LLP can be particularly beneficial if the business activities involve high-risk services or if claims for damages could be brought against the business, as it means that one partner will not be held liable for the mistakes of another. LLPs do not file Company Tax Returns or pay Corporation Tax, but the partnership will have to register for VAT if its annual taxable turnover exceeds £85,000.

LLP members are taxed individually on their share of the profits. This means that each of them has to register with HMRC for Self Assessment, file a tax return each year, and pay Income Tax and National Insurance on their personal income.

LLPs and property

An LLP can own property, as can most other kinds of business. So, for example, a medical practice owned by the doctors who work in it could arrange to buy their surgery premises. In most cases, it will require external funding in the form of a commercial mortgage to finance the purchase. 

However, getting a mortgage through an LLP does provide some challenges. A mortgage through an LLP is classed as a self-employed mortgage and this means that lenders will assess the LLP on the following:

• Length of time the LLP has been trading 
• How the LLP is set up 
• Declared net profit of the applicant/LLP or total income 
• Whether or not the LLP has any outstanding debt
• Nature of the LLP

Certain lenders may advertise slightly higher rates for mortgages involving limited companies or limited liability partnerships. This is especially true where investors have created an SPV (Special Purpose Vehicle) such as a registered business solely created for property investment.

How much can an LLP borrow?

Each lender has different variables in how they’ll calculate maximum mortgage amounts for LLPs. The majority of lenders generally lend between three and five times your annual income as a maximum.

Lenders will also need to check the affordability of the borrower, which is standard practice for any mortgage application. As self-employed applicants won’t have payslips and a set annual income, lenders have to distinguish the income in a completely different manner. 

For instance, an LLP mortgage will be assessed on the business income, in the form of finalised accounts or SA302 documents. Lenders will only accept official documents that are either signed off by an accountant or official documents from the HMRC.

The majority of lenders will only lend to Limited Liability Partnerships that have been trading for at least three years. Having accounts for three years can show lenders how stable the LLP is, along with the income generated over this time period. Lenders can then make a judgement on whether or not the mortgage will be affordable. For instance, if an LLP was established only six months ago, it gives lenders little proof of how financially capable the business will prove to be.

Most lenders will request accounts for three years. There are specialist lenders that may offer mortgages on accounts with less  history, and even if an LLP has only just filed their first year’s accounts, there may be specialist lenders willing to lend. 

Getting the buy to let mortgage you need for your LLP

As business funding experts, we work with all types of property finance - including mortgages for LLPs. This means that we can help you secure the funding you need.

Getting a buy to let mortgage for an LLP may actually be easier in comparison to a residential mortgage using our knowledge of the lending market, and approaching lenders who specialise in buy to let mortgages solely for companies. Rates tend to be slightly higher than conventional rates, due to the increased risk due to the limited liability of the business. However, if the mortgage fell into arrears, the individuals in the business wouldn’t be liable for any company debt - lenders may include clauses in their mortgage terms to hold directors of the LLP accountable in cases where loans aren’t repaid.

The deposit required is usually higher for a buy to let mortgage in comparison to a residential mortgage. This is irrespective of whether or not the applicant is an LLP or an individual. Most lenders insist borrowers have a 25% deposit. Headline rates tend to start at 60% loan to value. Despite this, there are still lenders that may offer buy to let mortgages with deposits of just 15%.

The majority of buy to let lenders now pay more attention to the rental income generated by the property, as this is what will essentially cover the mortgage payments. Nonetheless, lenders still need to be confident that mortgage payments can be met whilst the property isn’t in any receipt of rent.

Why choose Rangewell?

Buying any property involves high costs and it is important to have expert help to get the kind of funding that is right for your plans.

Rates are crucial. Even a fraction of a percentage point can make a substantial difference to what you will actually repay each month, and understanding both fees and any penalty charges are also vital to extra cost. 

Borrowing can be made more challenging still by the fact that there are many different lenders who may be prepared to offer you funding. Each has its own approach to interest rates and fee arrangements, and comparing them all may require expert knowledge to fully understand what is really being offered.

At Rangewell, we work with lenders across the market - and we can call on the expert knowledge you need. Our knowledge can not only help you secure the funding you need - it can save you a great deal of cash.

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.