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.