Buying Property Through a Limited Company: The Complete Guide

Buying rental property through a limited company has become increasingly popular since Section 24 restricted mortgage interest relief for individual landlords. But it's not right for everyone — the decision depends on your tax position, portfolio size, and long-term plans.

Why landlords use companies

The key advantage: a limited company pays Corporation Tax (25%) on profits, and can deduct mortgage interest in full as a business expense. Individual landlords pay income tax at their marginal rate (20/40/45%) and can only claim a 20% tax credit on mortgage interest.

For a higher-rate taxpayer with significant mortgage debt, the difference can be substantial.

Worked example

Property: £250,000, rent £1,200/month, mortgage £180,000 at 5% (£750/month interest).

• Individual (40% taxpayer): Income £14,400, tax credit on interest (20% × £9,000 = £1,800), tax payable ≈ £3,960. Effective rate: 27.5%
• Company: Income £14,400, deduct interest £9,000, profit £5,400, Corporation Tax ≈ £1,350. Effective rate: 9.4%

Annual saving: £2,610. But this profit is trapped in the company — extracting it triggers additional tax (dividends or salary).

The extraction problem

Company profits are taxed at 25%, but getting money out of the company and into your pocket costs more:

• Dividends: Taxed at 8.75% (basic), 33.75% (higher), or 39.35% (additional) on top of Corporation Tax
• Salary: Subject to income tax and National Insurance (employer and employee)
• Retained earnings: Leave profits in the company to fund further purchases — this is the most tax-efficient approach

Company buy-to-let mortgages

Limited company BTL mortgages are more restrictive than personal ones:

• Fewer lenders offer them (though the market has grown significantly)
• Rates are typically 0.5-1% higher than personal BTL mortgages
• Most require a personal guarantee from the director
• The company usually needs to be an SPV (Special Purpose Vehicle) — a company whose sole activity is property

Setup and running costs

• Company formation: £12-50 (Companies House)
• Annual accounts: £300-800 (accountant fees for a simple property company)
• Corporation Tax return: Usually included in accountant fees
• Confirmation statement: £13/year (Companies House)
• Separate bank account: Required — some banks charge monthly fees for business accounts

When a company makes sense

• You're a higher-rate (40%+) taxpayer
• You plan to buy and hold long-term (not sell soon)
• You want to reinvest profits into more properties
• You're buying new properties (not transferring existing ones)

When it doesn't

• You're a basic-rate taxpayer with small mortgages
• You want to extract all rental profit as personal income
• You only have 1-2 properties
• You plan to sell properties in the near future (company CGT + extraction tax can be higher)

Get specialist advice

This is one decision where a specialist property tax adviser pays for itself. The right structure for your specific circumstances depends on income, other earnings, family situation, and exit strategy. Tendmere tracks income and expenses regardless of whether you hold property personally or through a company.