Buy-to-Let Through a Limited Company: When It Pays and When It Doesn't

A buy to let limited company pays off when your rental profit is heavily geared, you already pay higher-rate tax on your other income, and you plan to reinvest rather than spend the profit. It usually does not pay off when your mortgage interest is small relative to rent, you are a basic-rate taxpayer, or you need every penny of rent as spending money — because getting the cash out of the company adds a second layer of tax.

The reason the answer swings so wildly is that two separate rules pull in opposite directions: Section 24 makes personal ownership expensive when you borrow, while dividend tax makes company ownership expensive when you withdraw. Below is the arithmetic, the exact break-even point, and the one-off cost of moving properties you already own.

Key points

• A company deducts mortgage interest in full; an individual gets only a 20% tax reducer under Section 24.
• Corporation Tax is 19% on profits up to £50,000 and 25% above £250,000, with a 26.5% marginal rate in between.
• Extract everything as dividends and the combined tax is about 27.7% (basic-rate shareholder), 48.0% (higher) or 50.9% (additional).
• For a higher-rate landlord, the company wins once mortgage interest is more than roughly 28% of rent after other costs — sooner if profits stay in the company.
• Moving an existing property in is a sale at market value: Capital Gains Tax plus stamp duty on the way in, which can take decades to recover.

Section 24 versus Corporation Tax

Since the finance cost restriction was fully phased in, an individual landlord cannot deduct mortgage interest from rental profit. Instead you are taxed on rent less non-finance costs, then given a tax reducer worth 20% of your finance costs. If you are a higher or additional-rate taxpayer, you are effectively taxed at 40% or 45% on money you have already paid to a lender. Our guide to Section 24 for landlords explains the mechanics, and the Section 24 calculator shows what it costs you personally.

A limited company is outside that regime entirely. Interest is an ordinary business expense, deducted before tax, and the remaining profit is taxed at 19% up to £50,000, 25% above £250,000, and an effective 26.5% on the slice in between because of marginal relief. Those limits are shared between associated companies, so a landlord with several SPVs cannot multiply the 19% band.

Worked example: a geared higher-rate landlord

One flat. Rent £24,000 a year, repairs, insurance and letting fees £3,000, mortgage interest £9,000. Cash profit is £12,000. The landlord already pays 40% tax on a salary.

If the £9,720 stays in the company to fund the next deposit, the company route is dramatically better. If the landlord withdraws it all as a dividend and the £500 dividend allowance is already used, the dividend upper rate of 35.75% takes £3,474.90, leaving £6,245.10. That is still £845.10 more than personal ownership, but the gap has shrunk from £4,320 to under £900.

Note the Section 24 reducer is also capped: relief is limited to 20% of the lowest of your finance costs, your property profits, and your adjusted total income above the £12,570 Personal Allowance. Landlords with small other income sometimes get less than the full 20%.

Extracting money: the second layer of tax

This is the part comparison articles skip. Company profit is taxed once inside the company and again when you take it out. Dividends carry a £500 allowance, then 10.75%, 35.75% or 39.35% depending on which band the dividend falls in.

Compare that with 20%, 40% or 45% on rental profit held personally — before Section 24 is layered on. A basic-rate landlord who spends the rent is worse off in a company almost every time, because 27.7% beats 20% in nobody's favour. A higher-rate landlord who reinvests is comparing 19% with an effective rate that can exceed 50%.

Softening the dividend hit

• Two shareholders. Splitting shares with a spouse who has unused basic-rate band spreads dividends across the lower 10.75% rate and gives two £500 allowances.
• Timing. Dividends can be deferred to a year when you have retired or taken a career break and have basic-rate band spare. Rental profit held personally cannot be timed.
• Director's loan repayments. Cash you lent the company to fund a deposit can be repaid to you tax-free. Interest you charge on that loan is deductible for the company and taxed on you as savings income, though the company must account for income tax on the interest it pays.
• A modest salary is deductible for the company, but only if it reflects genuine duties, and employer National Insurance is charged at 15% above the £5,000 secondary threshold.

Remember that dividends and rental profit both count towards the £100,000 Personal Allowance taper and the £60,000–£80,000 High Income Child Benefit Charge range. Retaining profit inside a company keeps income out of those traps; paying it out does not.

The break-even gearing ratio

Write R as rent minus non-finance costs and I as mortgage interest. Personal tax is 0.40R − 0.20I for a higher-rate landlord, while full extraction from a company costs 47.96% of the cash profit (R − I). Setting them equal gives a break-even of I ≈ 28% of R. In plain terms:

• Interest above about 28% of net rent: the company wins even if you withdraw everything.
• Interest above about 19% of net rent: the company wins for an additional-rate landlord.
• Any gearing at all: the company wins for a higher-rate landlord who retains profits, because 19% beats 40%.
• No mortgage and you spend the income: personal ownership wins at every rate band.

In our example, interest of £9,000 against net rent of £21,000 is 43% — comfortably past break-even. Halve the mortgage and the answer flips.

Scotland: Scottish income tax rates apply to rental profit because it is non-savings income, but dividends are taxed at UK-wide rates. A Scottish landlord paying the 42% higher rate reaches break-even at roughly 21% gearing, and the advanced 45% and top 48% rates lower it further. The company case is therefore stronger north of the border.

Stamp duty when a company buys

A common myth is that companies pay a special stamp duty penalty. They do not — they pay the same additional-property rates an individual pays on a second home. In England and Northern Ireland that is the standard SDLT bands plus a 5% surcharge on the whole price from £40,000 upwards. Scotland adds 8% ADS to LBTT; Wales applies its own higher LTT rates.

An individual buying that property as an additional dwelling pays exactly the same. The company only loses out where you personally would not have paid the surcharge — a first-time buyer, or someone replacing their only home. Two further points matter above £500,000: companies buying a dwelling for more than £500,000 face a single flat rate of SDLT unless a relief applies, and letting the property commercially is one of the qualifying reliefs; and a company holding a dwelling worth over £500,000 must file an Annual Tax on Enveloped Dwellings return each year to claim the property rental business relief, even though no tax ends up payable.

Limited company buy-to-let mortgages

Company lending is a smaller, specialist market, and the practical differences matter as much as the tax:

• Most lenders want a special purpose vehicle with property SIC codes and no trading activity. A company that also runs another business is harder to place.
• Directors almost always give personal guarantees, so the "limited liability" is limited in practice.
• Product fees and rates are generally priced above equivalent personal buy-to-let deals, though the company deducts all of it — including arrangement fees — against profit.
• Affordability stress tests are often more generous for companies than for higher-rate individual borrowers, precisely because interest is fully deductible. That can mean a company borrows more on the same rent.
• Expect a debenture or floating charge over the company, plus underwriting of the directors' personal income.

Net of everything, a slightly higher rate is usually the price of admission rather than the deciding factor. Model it with the real rate, not the headline personal rate.

Transferring properties you already own

You cannot simply move a property into your company. It is a disposal to a connected person at market value, which triggers two taxes at once.

Example. A flat bought for £150,000 is now worth £300,000, held by a higher-rate taxpayer in England.

• Gain £150,000, less the £3,000 annual exempt amount, taxed at the 24% residential rate: £35,280.
• SDLT on the company purchase at £300,000: £2,500 + £2,500 standard, plus 5% surcharge of £15,000 = £20,000.
• Plus legal fees, valuations, any early repayment charge on the old mortgage and arrangement fees on the new one.

That is over £55,000 before professional costs. If the annual saving is the £845 from our earlier example, the payback period runs into decades. This is why the honest answer for most existing portfolios is: leave what you own where it is and consider a company for the next purchase.

Two routes can reduce the entry cost, and both need specialist advice. Incorporation relief can defer the capital gain where the lettings genuinely amount to a business rather than passive investment, which turns on the degree of activity involved. And where the properties are already run through a genuine partnership, stamp duty relief on transfer to a connected company may be available. Neither is automatic, HMRC scrutinises both, and marketed "hybrid" structures that keep legal title personally while shifting profits to a company have been challenged. Get a written opinion before you commit.

The other trade-offs

• Admin. Annual accounts, a confirmation statement, a CT600 and accruals-basis bookkeeping. There is no cash basis for companies and no property allowance.
• Selling later. A company gain is taxed at 19%–25% with no annual exempt amount, then taxed again on extraction. A personal sale uses the £3,000 exemption and 18%/24% rates once.
• Losses. Company losses stay in the company and cannot be set against your salary.
• Inheritance tax. Shares in a property investment company do not qualify for Business Relief, so the £325,000 nil-rate band still applies, but shares are easier to gift in slices than bricks.
• Living in it. Private residence relief does not exist for company-owned property, and occupying it yourself creates a benefit-in-kind problem.

So when does it pay?

Usually worth it: you are a 40%+ taxpayer, borrowing 60% or more of the purchase price, buying to build a portfolio, and reinvesting the profit for years before you need income. The 19% rate acting as a compounding engine is the whole argument.

Usually not worth it: a single unmortgaged or lightly mortgaged property; basic-rate income; you need the rent to live on; or you already own the property and would face CGT and stamp duty just to get in. If the underlying deal only works on paper, the wrapper will not rescue it — see whether buy-to-let is worth it at all before worrying about structure.

What to do next

The decision turns on four numbers: your other income, your gearing, how much you plan to withdraw, and how long you will hold. Put them into the should I hold property in a company decision tool and it will show your break-even point and the cash difference over your holding period. If you already own the property personally, run the Section 24 calculator first to see exactly how much the interest restriction is costing you — that figure is the whole size of the prize. Official rates are on GOV.UK for SDLT and Corporation Tax.