Buying Property Through a Limited Company — Tax, Mortgages, and the Key Trade-Offs

Why Use a Limited Company for Property?

Prior to Section 24, most landlords held buy-to-let property in their personal names. Section 24 changed the economics for higher and additional rate taxpayers by removing mortgage interest deductibility — but limited companies are not subject to Section 24.

A limited company holding rental property:

• Pays corporation tax (currently 25% for profits above £50,000; 19% for profits below £50,000) on rental profits after deducting mortgage interest in full
• Retains profits within the company at the lower corporation tax rate
• Can distribute profits as dividends, which carry lower tax rates than income

This creates a potential advantage for higher-rate taxpayer landlords who do not need to extract all rental income immediately.

The Special Purpose Vehicle (SPV)

Most lenders insist that buy-to-let properties are held in a “Special Purpose Vehicle” (SPV) — a limited company whose sole purpose is property investment, with a specific SIC code (68209, 68100, or similar). They typically will not lend to a trading company that also holds investment property.

Setting up an SPV is straightforward (formation costs approximately £50–£100) and can be done online in a few hours.

Tax Advantages in Detail

Mortgage interest: Fully deductible from rental income as a business cost. A company with £20,000 rental income and £14,000 mortgage interest pays corporation tax on £6,000 profit (£1,140 at 19%) rather than income tax on £20,000 gross.

Retained profits: If you do not need the income, profits retained in the company are taxed at the lower corporation tax rate. Compounding retained profits within the company can accelerate portfolio growth.

Pension contributions: Director pension contributions are deductible from the company’s taxable profits, providing an additional tax-efficient extraction route.

The Disadvantages

Higher mortgage rates: Limited company buy-to-let mortgages typically carry interest rates 0.3–0.8% higher than personal name mortgages. The extra cost must be weighed against the tax saving.

Fewer lenders: The limited company buy-to-let mortgage market, while growing, remains smaller than the personal name market. This restricts competition and can mean higher arrangement fees.

Double taxation on extraction: When you extract profits as dividends, you pay both corporation tax (already paid on the profits) and dividend tax. Dividend tax rates (8.75% basic, 33.75% higher, 39.35% additional – 2024–25) are added to the corporation tax already paid. For landlords who need to extract all income, the combined rate can exceed the income tax rate.

Capital gains tax: When a company sells a property, it pays corporation tax on the gain (not CGT). Individuals pay CGT at 18%/24%. The corporate rate can be higher. Additionally, when the company is wound up or you sell your shares, further tax charges arise.

Mortgage transfer costs: If you currently hold property personally and want to move it into a company, this is treated as a sale and repurchase. You pay SDLT on the full market value (including the 5% BTL surcharge), CGT on any gain, and conveyancing costs. This is often prohibitively expensive.

When a Limited Company Makes Sense

A limited company structure is most beneficial when:

• You are a higher or additional rate taxpayer
• You plan to retain profits within the company rather than extract them immediately
• You are building a portfolio from scratch (rather than transferring existing personally-held property)
• You have a long time horizon (10+ years) to allow the tax savings to compound

It is typically not worth the complexity and additional mortgage costs for:

• Basic rate taxpayers (Section 24 impact is limited at 20%)
• Landlords who need to extract all rental income each year
• Single-property landlords with low mortgage leverage

Always obtain specialist tax advice before deciding on your ownership structure.

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