Buy to let
Buy to let: own it yourself or through a limited company?
A growing share of buy to let purchases, by some industry estimates most of them, now go through limited companies rather than individuals. The reason is tax, and in particular the rule that stops individual landlords deducting mortgage interest. But a company brings its own costs and catches, and for a single property the saving can be much smaller than people expect. Here is how the two compare.
How each is taxed
Owning it yourself. You pay income tax on the rent minus running costs, but mortgage interest is not deducted. You get a tax credit worth the basic rate on the interest instead (the "Section 24" rules). From April 2027 property income has its own rates of 22%, 42% and 47%, and the credit is 22%. For higher-rate taxpayers this means tax on money that has gone to the lender.
Owning it through a company. The company deducts mortgage interest in full and pays corporation tax on what is left: 19% on profits up to £50,000, rising to 25% at £250,000. But the profit belongs to the company. Taking it out, usually as dividends, is taxed again: from April 2026, 10.75% for basic-rate taxpayers and 35.75% for higher-rate taxpayers, after a £500 tax-free allowance. Profit left in the company to pay down debt or buy more property is not taxed again until it is taken out.
One property
Take a £220,000 flat let at £1,200 a month, with a £165,000 mortgage (75%) and the usual letting, repair and insurance costs, owned by a higher-rate taxpayer. A fair comparison has to include what a company really costs: company mortgages are often around half a percent dearer, and accounts and filings cost roughly £1,000 to £1,500 a year.
| How it is owned | Left after tax, a year |
|---|---|
| Personally (higher-rate taxpayer) | -£387 |
| Company, ignoring its extra costs | £1,763 |
| Company, 5.5% mortgage and £1,200 a year accountancy | £123 |
Owned personally, the flat loses money after tax. In a company it roughly breaks even. That is about £500 a year better, real but modest, and the company result is so close to zero that the dividend allowance covers anything paid out.
A portfolio of five
Five of the same flats, with £1,800 a year of company accountancy:
| How it is owned | Left after tax, a year |
|---|---|
| Personally (higher-rate taxpayer) | -£1,937 |
| Company, profit kept in the company | £4,017 |
| Company, all profit paid out as dividends | £2,760 |
Now the gap is several thousand pounds a year, and wider still if the profit is reinvested. The company advantage grows with the number of properties, the size of the mortgages and your tax rate, and it is largest when interest rates are high, because that is when Section 24 bites hardest.
A company tends to make most sense for higher-rate taxpayers building a portfolio and reinvesting the profits, rather than for one property whose income you want to spend.
Borrowing: companies can often borrow more
Lenders test that the rent covers the mortgage interest at a "stress" rate, often 5.5%. They usually want the rent to cover it by 125% for companies but 145% for higher-rate individuals. On £1,200 a month of rent, that supports a loan of about £209,000 through a company against about £181,000 personally. Company mortgages usually also need the directors to give personal guarantees, so the debt is not as separate from you as it might seem.
The catches
- Moving properties you already own into a company is expensive. The company pays stamp duty on the market value, including the additional property surcharge, and you may owe capital gains tax as if you had sold. A relief can apply for genuine property businesses, but it needs specialist advice.
- Buying costs are the same or higher. Companies pay the additional property stamp duty rates. In England, a company buying a home for over £500,000 can face a flat 17% rate unless a relief applies, and an annual tax on enveloped dwellings unless it claims relief for a letting business.
- Running a company takes work. Annual accounts, a corporation tax return and Companies House filings, plus records of any money you take out.
- Getting money out costs tax. If you need the rental income to live on, the second layer of tax on dividends eats much of the advantage.
- Rules change. Corporation tax, dividend tax and property tax have all changed in the last few years, and may again.
Companies do offer some flexibility for the long term, for example in passing shares to family members, but that is an area for specialist advice too.
Check the numbers for your property
The buy to let calculator lets you switch between owning a property personally, at your tax rate, and through a limited company. You can also set the mortgage rate and running costs, to see the yield, the cashflow after tax and whether the rent passes the lender's test.