Limited company (for landlords)
A limited company is a separate legal entity, registered at Companies House, that exists in its own right apart from the people who own and run it. Its owners are shareholders and its decision-makers are directors, and their liability is generally limited to what they put in. For landlords, using a limited company means the company owns the rental property and you own and control the company, rather than holding the property as an individual buy-to-let. This has become a mainstream choice: by 2024 the majority of new buy-to-let mortgage applications were made through companies rather than by individuals.
Why landlords use a limited company
The main driver is tax. Since Section 24 of the Finance (No. 2) Act 2015 was phased in, fully from April 2020, individual landlords can no longer deduct mortgage interest as an expense and instead receive only a basic-rate tax credit on it. A company is treated differently. It deducts mortgage interest in full as a business cost and pays corporation tax on its profits, at rates that are often lower than the higher rates of income tax. For a higher-rate taxpayer with a mortgaged portfolio, this can make a meaningful difference, which is why incorporation has grown so sharply since 2016. From working with self-managing landlords across the UK, the company route tends to suit higher-rate taxpayers building a mortgaged portfolio they intend to keep, and to suit new purchases far more than transferring property already held personally.
SPVs and limited company mortgages
Most landlord companies are set up as a special purpose vehicle (SPV), a company formed solely to hold and let property rather than to trade in anything else, usually registered under a property SIC code such as 68100 or 68209. Lenders prefer this, and most will only lend to an SPV through a limited company buy-to-let mortgage. These mortgages have become widely available, but they often carry higher interest rates and arrangement fees than personal buy-to-let lending, and lenders usually require the directors to give personal guarantees, which limits the liability protection in practice.
The costs and downsides
A company is not automatically cheaper. Profits taken out of the company as salary or dividends are taxed again in your hands, so there are effectively two layers of tax, and the advantage shrinks for a basic-rate taxpayer who wants to draw all the rent as income rather than reinvest it. Running a company also brings ongoing obligations: annual statutory accounts and a confirmation statement to Companies House, a corporation tax return to HMRC, and usually an accountant, all of which cost money whether or not the company is busy. The biggest trap is transferring an existing property you already own into a company. Because the company is a separate person in law, transferring it in is a sale at the property's market value, so it can trigger stamp duty, including the surcharge on additional properties, which you can estimate with our stamp duty calculator, as well as capital gains tax on any increase since you bought it. Relief that avoids this is narrow and rarely applies to small landlords, so treat any claim of a way to skip stamp duty with caution.
Is a limited company right for you?
There is no single answer, because it depends on your tax position, how many properties you hold or plan to buy, whether you will reinvest the rent or live off it, and your inheritance and succession plans. A company often makes sense for a higher-rate taxpayer acquiring new properties and reinvesting the income, and often does not make sense for a basic-rate taxpayer, or for someone weighing the cost of moving an existing personally-held portfolio across. Landlords using August who incorporated tell us the decision turned on two things, their tax band and whether they planned to reinvest the rent or live off it. Because the interaction of corporation tax, dividend tax, capital gains tax and stamp duty is complex, this is a decision to take with a specialist property accountant rather than on general guidance.
Frequently asked questions
Should landlords buy property through a limited company?
It depends on your circumstances. A company can be more tax-efficient for higher-rate taxpayers with mortgaged property who reinvest their profits, because it deducts mortgage interest in full and pays corporation tax. For basic-rate taxpayers, or those who want to draw all the rent as income, the savings may be outweighed by the extra costs. Take specialist tax advice before deciding.
What is an SPV?
A special purpose vehicle is a limited company set up solely to hold and let property, rather than to run another kind of business. Lenders generally prefer or require an SPV for limited company buy-to-let mortgages, and it is registered with a property-related SIC code at Companies House.
Can I transfer my existing rental property into a limited company without paying tax?
Usually not. Moving a personally-owned property into a company counts as a sale at market value, which can trigger both stamp duty and capital gains tax. Reliefs that remove this are narrow and rarely apply to individual landlords, so the costs of transferring an existing portfolio often outweigh the benefits.
