Holding property in a limited company

More and more buy-to-let landlords are holding mortgages within limited company structures. Before deciding on the most appropriate structure for your property business, it’s important to consider the pros and cons of corporate ownership.

Advantages

• The property would be owned by the limited company, which is a separate legal entity. The owner’s personal assets would be protected against business debts or legal claims.
• It may be more tax efficient. Rental income received by an individual is added to their other income and taxed at their marginal income tax rate (which for higher earners is 40% or even 45%). In contrast, profits in a company are subject to Corporation Tax – currently 19% for small profits, up to 25% for larger profits (as of April 2025).

However, it’s important to note that the tax advantage exists at the company level. If you want to draw the profits out for personal use, you’ll then pay personal tax (at dividend tax rates) on such withdrawals. Whether or not you will save tax overall depends on a range of factors including the portfolio’s overall profits and your marginal rate of income tax. It’s important to approach incorporation using forecasts based on your specific situation – you may or may not save tax overall.

• Using a company can also open up inheritance tax (IHT) planning opportunities for landlords who want to pass their property wealth to the next generation. These are known as ‘Family Investment Companies’ and require company articles and share rights to be carefully considered on incorporation.
• Restrictions applicable to dwelling-related loan interest and associated finance costs were introduced in 2017, meaning individual buy-to-let owners can only claim a basic-rate tax credit (20%) on their finance interest, rather than deducting it as an expense. This means higher-rate taxpayers effectively pay tax on part of their mortgage interest. Limited companies are not subject to the restriction. When you hold property in a company, the mortgage interest is treated as a business expense and can be deducted in full against rental income before calculating taxable profit.

Disadvantages

• Compared with individual ownership, a limited company requires more administration and comes with increased compliance requirements.
• Generally, the costs involved in a limited company obtaining finance are higher than those for individuals.
• Typically, you will need to ‘sell’ your properties to the new company, which would trigger both Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) charges. It’s essential to calculate these costs to see if the long-term tax savings justify the immediate cost.

If you have any questions, then please feel free to get in touch with Tom Young on 023 8046 1254 or email Tom Young.