Should Landlords Form a Limited Company? Property Company Pros & Cons
By Sardar Muhammad, AAT • • 12 min read
📋 Quick Answer
A limited company is usually best for new purchases by higher-rate taxpayers with mortgages. For existing properties or basic-rate taxpayers with low mortgages, personal ownership may still be better. Every situation is different – get professional advice.
Why Are Landlords Considering Companies?
Since Section 24 restricted mortgage interest relief, many landlords have looked at limited companies as an alternative structure. The key benefits are:
- Full mortgage interest deduction (companies aren't affected by Section 24)
- Lower tax rates (19-25% corporation tax vs up to 45% income tax)
- Flexible profit extraction
- Inheritance tax planning opportunities
Personal Ownership vs Company: Tax Comparison
Let's compare a higher-rate taxpayer with rental income:
Personal Ownership
Rent: £15,000
Mortgage interest: £8,000
Other expenses: £2,000
Taxable (Section 24): £13,000
Tax at 40%: £5,200
Less 20% credit: -£1,600
Net tax: £3,600
Limited Company
Rent: £15,000
Mortgage interest: £8,000
Other expenses: £2,000
Taxable profit: £5,000
Corp tax at 19%: £950
Net tax: £950 (+ extraction tax)
The company pays less tax on profits. However, if you want to use the money personally, you'll pay dividend tax when extracting it. The overall saving depends on:
- Your personal tax rate
- Whether you need to extract profits or can reinvest
- Your mortgage size and interest rate
Benefits of a Property Company
✅ Full Mortgage Interest Relief
Unlike personal ownership, companies can still deduct 100% of mortgage interest as an expense. This is the main driver for incorporation.
✅ Lower Tax Rates
Corporation tax is 19-25%, compared to up to 45% income tax for personal ownership.
✅ Retain Profits Tax-Efficiently
If you don't need the income to live on, profits can stay in the company and only pay corporation tax. Personal ownership forces you to pay income tax whether you use the money or not.
✅ Flexible Extraction
You can choose when and how to take money out – salary, dividends, or director's loan.
✅ Inheritance Tax Planning
Company shares can be gifted or held in trust more easily than property. Potential for reducing IHT exposure.
Disadvantages of a Property Company
❌ Transfer Costs (for existing properties)
Moving existing properties into a company triggers:
- Stamp Duty Land Tax (including 3% surcharge)
- Capital Gains Tax on any property value increase
- Mortgage arrangement fees (new company mortgage needed)
- Legal fees
This often makes transferring existing properties uneconomic.
❌ Higher Mortgage Rates
BTL mortgages for limited companies typically have higher interest rates (0.5-1% more) and may require personal guarantees.
❌ Administrative Burden
- Annual accounts filing
- Corporation tax return
- Confirmation statement
- Company records maintenance
❌ Loss of CGT Reliefs
Companies don't get:
- Principal Private Residence Relief
- CGT Annual Exempt Amount (£3,000)
- Lettings Relief
❌ Double Taxation on Sale
When selling a company property, you pay corporation tax on the gain. Then, if you want the money personally, you pay dividend tax on extraction.
When a Company Makes Sense
✓ Consider a company if you:
- Are a higher or additional rate taxpayer
- Are buying new properties (not transferring existing)
- Have significant mortgages
- Plan to reinvest profits rather than extract
- Want to build a portfolio over time
- Are thinking about inheritance planning
✗ Personal ownership may be better if you:
- Are a basic rate taxpayer
- Have low or no mortgages
- Already own properties (transfer costs too high)
- Need the rental income to live on
- Plan to sell properties soon
Setting Up a Property Company (SPV)
For buy-to-let lending, most lenders require a Special Purpose Vehicle (SPV) with the correct SIC codes:
- 68100 – Buying and selling of own real estate
- 68209 – Other letting and operating of own or leased real estate
- 68320 – Management of real estate on a fee or contract basis
Frequently Asked Questions
What is a property investment company (SPV)?
A Special Purpose Vehicle (SPV) is a limited company set up specifically to hold rental properties. It pays corporation tax (19-25%) on profits instead of income tax, and is not affected by Section 24 mortgage interest restrictions.
Can I transfer existing properties to a company?
Yes, but it triggers Stamp Duty Land Tax (3% surcharge applies) and potentially Capital Gains Tax on any property value increase. This makes transferring existing properties often uneconomic. Companies work best for NEW purchases.
Do I need a special company for property investment?
Yes, most BTL lenders require a Special Purpose Vehicle (SPV) with specific SIC codes (68100, 68209, 68320). A standard trading company may struggle to get BTL mortgages. We can set up the right structure for you.
Need Property Tax Advice?
I help landlords across Glasgow decide on the best structure for their property investments. Get personalised advice based on your situation.
Sardar Muhammad, AAT Certified
Sardar is an AAT certified accountant and founder of LimeTree Accounting Solutions in Glasgow. He specialises in property tax and helps landlords structure their portfolios tax-efficiently.