Buy-to-Let: Company vs Personal Ownership

Why Structure Matters

Since Section 24 was fully implemented in April 2020, individual landlords can no longer deduct mortgage interest from rental income. Instead, they receive a 20% tax credit. For basic-rate taxpayers, this is roughly neutral. For higher-rate (40%) and additional-rate (45%) taxpayers, it can turn profitable properties into tax-negative cashflow.

Limited companies are not affected by Section 24. A company owning rental property can still deduct mortgage interest in full before calculating profit, and then pays Corporation Tax at 25% on what remains. This single difference is the primary driver behind the surge in company purchases — HMRC data shows that limited companies now account for over 30% of new buy-to-let mortgage applications.

But lower tax is not the only consideration. Mortgage rates, administrative burden, profit extraction, and exit planning all differ between the two structures.

Tax Comparison: Personal vs Company

Worked Example: Same Property, Two Structures

Property: £200,000 purchase price, 75% LTV mortgage at 5%, monthly rent £1,000 (£12,000/year). The investor is a 40% taxpayer.

The difference is stark: the 40% taxpayer is £1,800/year better off using a company structure on this single property. Over a 25-year hold, that compounds into tens of thousands in saved tax — amplified further across a portfolio of multiple properties.

However, the company example only shows profit retained within the company. If the investor wants to extract that cash personally (via dividends), additional tax applies — see below.

Mortgage Differences

Company buy-to-let mortgages typically differ from personal BTL products:

• Higher rates: Expect 0.5-1% higher interest rates than personal BTL products. This partly offsets the Corporation Tax advantage.
• Personal guarantee required: Lenders will usually require directors to personally guarantee the mortgage. Your personal assets are still at risk.
• SPV preferred: Most lenders require a Special Purpose Vehicle (SPV) — a company whose sole activity is property investment. Trading companies face more restrictions.
• Fewer products: The company BTL market has grown significantly but is still smaller than the personal market. Use a specialist broker to access the full range.
• Remortgaging: Can be more complex and expensive than personal remortgages. Budget for higher legal and valuation fees.

Running Costs and Admin

A limited company creates ongoing administrative obligations:

• Annual accounts: Must be filed at Companies House. Accountancy fees typically £500-£1,500/year depending on portfolio size.
• Corporation Tax return: Filed annually with HMRC (usually handled by your accountant).
• Confirmation statement: Annual filing at Companies House (£34/year online).
• Company bank account: Required for separating company and personal finances.
• Public disclosure: Company accounts, director details, and person of significant control are publicly visible on Companies House.

Personal ownership is much simpler: you file a Self Assessment tax return and keep records of income and expenses. No company accounts, no Companies House filings. For a single property, the administrative burden of a company may not be worthwhile.

Extracting Profits from a Company

Corporation Tax is only the first layer. When you want to actually spend the money, you need to extract it from the company — and that triggers additional tax:

• Dividends: The most common method. After Corporation Tax, dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). The first £1,000 of dividends is tax-free (2025-26).
• Salary: The company can pay you a salary, deductible as an expense. But salary attracts PAYE and National Insurance, making it less efficient than dividends for most.
• Director's loan: You can lend money to your company (and be repaid tax-free), or borrow from the company (but overdrawn director loan accounts attract a 33.75% s455 charge).
• Retain and reinvest: The most tax-efficient option. Leave profits in the company, build reserves, and use them as deposits for further property purchases. No extraction tax if you don't take the money out.

This is why company ownership is especially powerful for portfolio builders who want to reinvest rather than draw personal income. If you need to live on the rental income, the extraction tax erodes much of the Corporation Tax advantage.

Selling Up: Exit Tax Implications

How you sell matters as much as how you hold:

Exit planning should be part of your decision from day one. Company ownership can be less efficient on exit than during holding — but MVL and share sales offer mitigation routes.

Who Should Use a Company?

There is no universal answer. Here are general guidelines:

Critical: get accountant advice before your first purchase. The cost of a consultation (£200-£500) is trivial compared to the cost of choosing the wrong structure and wanting to reverse it later.

Transferring Existing Properties to a Company

If you already own properties personally and want to incorporate, be aware of the costs:

• Stamp duty: The transfer is treated as a purchase at market value. The company pays full SDLT including the 5% surcharge.
• Capital Gains Tax: You are treated as selling the property at market value. Any gain since purchase is taxable at 18%/28%.
• Mortgage costs: The personal mortgage must be repaid and a new company mortgage obtained. Expect arrangement fees, valuation fees, and legal costs.
• Incorporation Relief: Section 162 TCGA 1992 may allow CGT deferral if you transfer a property business (not just a single property) as a going concern. This requires careful structuring — your accountant can advise whether you qualify.

For most landlords with 1-3 properties that have appreciated significantly, the transfer costs exceed the ongoing tax saving. The company structure is most beneficial when used from the point of purchase.

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