Key Takeaway

Higher-rate taxpayers (40% or 45%) typically save more by holding buy-to-let property in a limited company (SPV), where mortgage interest is fully deductible and rental profit is taxed at corporation tax rates (currently 19% to 25%). Personal owners face Section 24 restrictions that cap mortgage interest relief, pushing effective tax rates higher. However, company structures carry setup costs, stricter mortgage criteria, higher stamp duty surcharge, and potential capital gains when you sell or extract profits, so the break-even depends on your rental margin, property value, and plans for growth.

Introduction

Since April 2020, UK landlords who own buy-to-let property personally cannot deduct mortgage interest from rental income before calculating tax. Section 24 phased out full relief and replaced it with a basic-rate (20%) tax credit, meaning higher-rate taxpayers lose a large chunk of margin to income tax. A limited company (often called a special purpose vehicle or SPV) avoids this restriction: the company deducts full mortgage interest as a business expense, and the remaining profit is taxed at corporation tax rates instead of income tax. For many portfolio landlords and higher earners, this structure delivers better net returns, but it comes with its own costs and rules that make it the wrong choice for some buyers.

What You Will Learn

  • How tax treatment differs between personal and limited company ownership (Section 24, corporation tax, and dividend tax).
  • When the numbers tip in favour of an SPV, and when personal ownership still makes sense.
  • The additional costs and mortgage criteria you face with a company structure.
  • Step-by-step guidance to evaluate which structure fits your tax position and investment plans.

Step 1: Understanding the Tax Treatment Difference

Personal Ownership

When you own buy-to-let property in your own name, rental income is added to your other income and taxed at your marginal rate (20%, 40%, or 45%). Since April 2020, you cannot deduct mortgage interest before calculating this tax. Instead, you receive a 20% tax credit on the interest. For a basic-rate taxpayer this makes no practical difference, but for a higher-rate (40%) or additional-rate (45%) taxpayer, the effective tax on the interest portion is now 20% or 25%, not zero. This can turn a profitable rental into a loss on paper, or push you into a higher tax bracket.

Limited Company (SPV) Ownership

A limited company is a separate legal entity. The company owns the property, takes the rental income, and deducts full mortgage interest (and other allowable costs) as business expenses. The remaining profit is taxed at corporation tax rates (19% for profits up to £50,000, rising to 25% above £250,000, with marginal relief in between, as of 2026). To extract the profit personally, you draw a salary or dividend, which triggers income tax and (for dividends) dividend tax at your personal rate. However, the combined effective rate is often lower than the income tax alone on personally held rental profit, especially for higher earners.

Financial structuring choices like these are covered in foundational finance texts such as Principles of Finance (OpenStax, 2022), which explain how business entities and tax treatment shape investment returns.

Step 2: Calculating Your Tax Position

Run the numbers for both structures before you commit. Start with your rental income, subtract mortgage interest and other costs (letting agent, insurance, maintenance), and calculate the net profit. Then apply:

  • Personal: Add profit to your other income, calculate income tax at your marginal rate, and subtract the 20% tax credit on the mortgage interest.
  • Company: Multiply profit by the corporation tax rate (19% to 25%), then add dividend tax on what you draw out personally (8.75% basic rate, 33.75% higher rate, 39.35% additional rate, as of 2026).

For example, a higher-rate taxpayer with £10,000 rental profit and £8,000 mortgage interest would pay around £3,600 income tax personally (after the 20% credit), but only around £1,900 corporation tax plus dividend tax on extraction if held in a company. The gap widens as interest costs and tax rates rise.

If you plan to reinvest profit into more property rather than drawing it out immediately, the company route defers the dividend tax and keeps more capital working. According to MoneyHelper, landlords should model both scenarios with realistic figures before deciding.

Step 3: Weighing the Costs and Requirements

Limited company buy-to-let mortgages carry higher interest rates (typically 0.25% to 0.75% above personal buy-to-let rates) and require larger deposits (often 25% to 30% loan-to-value, compared to 20% to 25% for personal mortgages). Lenders assess the rental coverage more strictly, usually requiring rent to cover 125% to 145% of the mortgage payment at a notional stress rate.

You also pay setup costs (company formation, legal fees, accountancy), annual accounts and Corporation Tax returns, and a 3% stamp duty land tax surcharge on top of the standard rates when the company buys an additional residential property, as outlined on GOV.UK. For a £300,000 property, the total stamp duty can be £17,500 or more. If you already own property personally and want to transfer it into a company, the transfer counts as a sale and disposal for capital gains tax and stamp duty, which can be prohibitive.

Step 4: Deciding Which Structure Fits Your Plans

Use a limited company when:

  • You are a higher-rate (40%) or additional-rate (45%) taxpayer.
  • Your rental properties generate significant mortgage interest costs relative to profit.
  • You plan to build a portfolio and reinvest profit rather than draw out all income immediately.
  • You can meet the stricter deposit and rental coverage requirements.
  • You are buying a new property (not transferring an existing one, where capital gains tax would apply).

Stick with personal ownership when:

Read also: Repayment vs Interest-Only Buy-to-Let Mortgage in the UK: Which Is Better?

  • You are a basic-rate (20%) taxpayer (Section 24 does not hurt you).
  • You own only one or two properties with low leverage (small mortgage, so little interest to relieve).
  • You plan to sell within a few years (capital gains tax is lower on personally held property: 18% or 24%, versus 25% corporation tax plus dividend tax on extraction).
  • You want simpler admin and lower upfront costs.

The right structure depends on your total income, the number of properties, the leverage, and your plans for growth and extraction. The Financial Conduct Authority regulates mortgage advice, and you should consider speaking to an FCA-authorised mortgage adviser and a qualified accountant before deciding.

Practical Tips

  • Model both structures with your actual rental income, mortgage interest, and other income before you commit. Use current tax rates and mortgage availability.
  • Factor in the higher mortgage rate and deposit for a company loan when comparing returns.
  • If you already own property personally, transferring it into a company usually triggers capital gains tax and stamp duty, making it uneconomical unless your gains and future tax savings are very large.
  • If you plan to expand your portfolio, buying new properties in a company from the start avoids the transfer trap.
  • Keep detailed records of rental income and costs. A company must file annual accounts and a Corporation Tax return; HMRC penalties for late filing apply.

Common Mistakes to Avoid

  • Assuming a company is always better because “mortgage interest is deductible” without running the full calculation including dividend tax and extraction.
  • Ignoring the higher mortgage rate and tighter lending criteria, which can reduce net yield and limit what you can borrow.
  • Transferring existing property into a company without accounting for the capital gains tax and stamp duty bill.
  • Forgetting the annual accountancy and filing costs, which eat into profit on smaller portfolios.
  • Drawing all profit as dividends immediately, which negates the tax deferral benefit and can push you into higher dividend tax bands.

Frequently Asked Questions

Can I get a buy-to-let mortgage in a limited company if I have no other income?

Most lenders assess limited company buy-to-let applications on rental coverage (rent must cover 125% to 145% of the mortgage payment) rather than personal income. However, some require the director to demonstrate affordability or have a minimum personal income, and you must have enough personal funds for the deposit and costs.

Do I pay capital gains tax when I sell a property held in a limited company?

The company pays corporation tax on the capital gain (currently 25% on gains above the profit threshold, with no separate CGT rate for companies). If you then want the net proceeds personally, you draw them as a dividend, triggering dividend tax. The combined rate can be higher than the 18% or 24% CGT on personally held property, so consult an accountant before selling.

Can I live in a property owned by my limited company?

Not without triggering a benefit-in-kind tax charge and potentially breaching your buy-to-let mortgage terms. Buy-to-let mortgages, whether personal or company, prohibit owner occupation. If you want to live in the property, you need a residential mortgage, which is generally not available to limited companies.

Is the 3% stamp duty surcharge the same for a company and for a personal buyer?

Both pay the 3% surcharge on additional residential properties. However, companies cannot claim the first-time buyer relief, and if you already own property personally, a company purchase still counts as an additional property for the surcharge.

Conclusion

A limited company buy-to-let structure typically beats personal ownership for higher-rate taxpayers with leveraged portfolios, but only if the rental margin, property value, and plans for reinvestment justify the higher mortgage costs, tighter lending, and setup fees. Run the numbers for both structures with realistic figures, and remember that tax rules, interest rates, and mortgage products change. This information is general educational guidance, not regulated mortgage advice or personalised tax advice. Refisage is not authorised by the Financial Conduct Authority. Consider speaking to an FCA-authorised mortgage adviser and a qualified accountant to confirm which structure fits your circumstances before you buy.

Your home may be repossessed if you do not keep up repayments on your mortgage. Eligibility, lending criteria, and mortgage rates vary by lender and your circumstances. Tax treatment depends on your total income and can change. Stamp duty rules differ across England, Scotland, Wales, and Northern Ireland; verify current rates and reliefs with a qualified tax professional or on GOV.UK before completing your purchase.