Mortgage applications for LLP members
Partners in LLPs are normally taxed as if they are self-employed, which means that they are usually also assessed as self-employed for the purposes of mortgage applications. However, increasingly we are seeing that lenders will treat LLP members similarly to employees, in particular where an individual has transferred from employment to partnership in a business with a long-established trade.
The lending criteria varies from lender to lender so it is important that you use a competent broker to assist with your mortgage application. Your broker will need to speak to us so we can explain how you are paid and ensure that the correct information is submitted to the lender.
You should contact us as soon as you start looking for a mortgage so that we can ensure that we have all of the required documentation to support your application. Some lenders require copies of original documents from HMRC which must be sent out by post.
Broker or lender application?
You can apply for a mortgage either directly with the bank or building society that’s lending you the money (the ‘lender’), or via a broker who acts as an intermediary between you and your lender. Brokers receive a fee from the lender for placing your mortgage with them. Some brokers also charge a fee to you, the borrower.
Whilst the additional cost of a broker is probably unwelcome when buying a property, we would recommend using a broker in all circumstances (employed or self-employed) as brokers have access to a wider range of mortgages, which can save you significant amounts in interest payments over the life of a mortgage. A competent broker can also save a lot of admin hassle, as they will know precisely what each lender wants to see as evidence of income.
Lenders employ people called ‘underwriters’ who decide whether or not you are a suitable candidate for a mortgage, based on the information you provide to them. Underwriters often have a lot of applications to assess, and limited time, so it’s important to ensure that your application is supported by the correct documentation in the first instance to avoid delays.
Self-employed or employed?
As noted above, most lenders will assess LLP members as self-employed for mortgage purposes, even if you are not self-employed in the traditional sense. This is because lenders tend to follow the tax treatment of an income source, and LLP profits are taxed in the same way as self-employed profits.
Some lenders, however, will treat LLP members as employees, i.e. not self-employed, if their share of the partnership profits is below a certain level (this level varies from lender to lender) or if they have transferred from employment in a business with a long-established trade. Your percentage share of the partnership profits will vary depending on the profitability of the LLP, so let us know when you’re planning to submit a mortgage application so that we can help your broker to make the correct assessment.
The evidence you need to support your income varies widely from lender to lender, however we have summarised below the most common documents needed.
Evidence of income
- Accountant’s certificate Each lender has their own form which they will ask your accountant or adviser to complete with your income details. Your broker will know if an accountant’s certificate is required. You should provide our contact details as your accountant so that the certificate is sent directly to us to complete. Please note that we do need the correct form to complete, as each lender has slightly different requirements and they will not normally accept a letter (even on headed paper) from us.
- Partnership letter Some lenders will now accept a letter from the LLP, signed by a senior partner in the LLP’s finance team, confirming a partner’s entitlement to fixed and variable income. In this scenario, the LLP member’s application will be treated more like an employee’s application.
- SA302 form This is a HMRC issued form (see below) confirming the income declared on your self-assessment tax return. Lenders will often ask for two or three years’ SA302 forms. Some lenders require these forms to be printed by HMRC, so we require a minimum of two weeks to request copies of these if that is the case. If the lender is happy with PDF copies, then we can provide these within a couple of days.
- Tax year overview (TYO) This is a summary of your total tax due, and total tax paid, printed from the HMRC online self-assessment portal. Provided you have signed a 64-8 form that has been correctly processed by HMRC, we can provide these within a couple of days. TYOs are often requested in tandem with SA302 forms, and the figures on the two documents must match.
Gross income and affordability
It is important to note that your gross income for mortgage purposes will be the same under the LLP model as it is under employment; if you have received a profit share then it will be increased. The reason for this is that under the Partnership Agreement you are entitled to a Fixed Profit Share which is set at the same level as your salary under employment. Therefore your total income for mortgage affordability purposes should be unaffected by joining the LLP.
Optimal Compliance will support all LLP members with mortgage and loan applications at no cost to the LLP member. We appreciate that applying for a mortgage is more complicated as a LLP member, and we are totally committed to helping all LLP members with the process.
Please contact your client manager at Optimal Compliance before you begin your application so that they can assist with your application.