Should Landlords Use a Limited Company UK?
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Limited companies can deduct mortgage interest in full and pay corporation tax (25%) instead of income tax (up to 45%). However, transferring existing properties triggers CGT and SDLT. Companies work best for new purchases, highly leveraged portfolios, or higher-rate taxpayers.
Since the Section 24 mortgage interest restrictions phased in fully, many landlords are considering incorporation. Here's what you need to know.
Benefits of a limited company for landlords
The main advantage is full mortgage interest deductibility plus lower corporation tax rates compared to higher-rate income tax.
- Full mortgage interest relief - Companies deduct 100% of mortgage interest from profits (individuals only get a 20% tax credit)
- Lower tax rate - Corporation tax is 25% vs up to 45% income tax for higher earners
- Retained profits - Leave money in the company to grow tax-efficiently
- Inheritance planning - Shares can be gifted more easily than property
- Limited liability - Personal assets protected from business debts (though lenders often require personal guarantees)
- Professional image - Some tenants and agents prefer dealing with companies
Downsides of incorporating
Companies add complexity, cost, and extracting profits triggers additional tax.
- Running costs - Accountancy, Companies House fees, and admin time
- Double taxation on extraction - Profits are taxed in the company, then again when you take money out
- Transfer costs - Moving existing properties triggers CGT and SDLT
- Mortgage availability - Fewer lenders, often higher rates for company buy-to-let
- No CGT annual exemption - Companies don't get the personal CGT allowance
- Public records - Accounts filed at Companies House are public
- No private residence relief - If you ever live in the property
Corporation tax vs income tax
Companies pay 25% corporation tax on profits. Individuals pay income tax at 20%, 40%, or 45% depending on total income—but mortgage interest is restricted.
| Factor | Personal Ownership | Limited Company |
|---|---|---|
| Tax rate on profits | 20% / 40% / 45% | 25% |
| Mortgage interest | 20% tax credit only | Fully deductible |
| CGT on sale | 18% / 24% | 25% (corp tax) |
| Extracting profits | Already in your hands | Additional dividend tax |
| Annual CGT allowance | £3,000 (2024/25) | None |
What about existing properties?
Transferring properties you already own to a company is treated as a sale at market value. You'll pay CGT on any gain and the company pays SDLT on the purchase.
This is why most advisers recommend incorporating for new purchases only. The upfront tax hit of transferring existing properties often outweighs decades of future tax savings.
Calculate carefully. If your properties have significant gains, the CGT on sale plus 5% SDLT could wipe out years of corporation tax savings.
CGT and SDLT on transfer
When you transfer a property to your company, you pay CGT on the gain (market value minus original cost). The company pays SDLT on the full market value.
- CGT - 18% (basic rate) or 24% (higher rate) on residential property gains
- SDLT - Standard rates plus 5% surcharge for companies buying residential property
- Legal fees - Conveyancing on both sides of the transfer
- Mortgage costs - Existing mortgage must be repaid; new company mortgage arranged
Example: A property bought for £200,000 now worth £350,000 means £150,000 gain. At 24% CGT, that's £36,000 tax. Plus SDLT on £350,000 at residential rates plus 5% surcharge.
Section 162 Incorporation Relief
This CGT relief can defer (not eliminate) the gain when you transfer an entire business to a company in exchange for shares only.
Key requirements:
- Must transfer the entire business, not just individual properties
- Must receive only shares in return (no cash or loan accounts)
- The letting must qualify as a business (ongoing activity, multiple properties, active management)
- SDLT is still payable by the company
This is complex territory. HMRC scrutinises these claims carefully. The relief defers CGT to when you eventually sell the shares—it doesn't eliminate the tax.
When does incorporation make sense?
Companies work best for new purchases by higher-rate taxpayers with highly leveraged portfolios who plan to reinvest profits long-term.
Consider a company if:
- Buying new properties - No CGT or SDLT transfer costs
- Higher-rate taxpayer - Biggest benefit from 25% vs 40%+ tax
- High leverage - More mortgage interest to deduct
- Reinvesting profits - Don't need to extract money regularly
- Building a portfolio - Long-term growth strategy
- Inheritance planning - Easier to gift company shares
Personal ownership may be better if:
- Basic-rate taxpayer with low mortgage
- Need regular income from properties
- Planning to sell soon (personal CGT allowance)
- Only one or two properties
SPV vs trading company
Most landlords use an SPV (Special Purpose Vehicle)—a company that only holds property. Trading companies with other business activities are more complex.
| Aspect | SPV | Trading Company |
|---|---|---|
| Purpose | Hold property only | Multiple business activities |
| Mortgage options | More lenders for property-only SPVs | Fewer lenders accept trading companies |
| Risk isolation | Properties protected from other liabilities | All activities share same liabilities |
| Complexity | Simpler accounts | More complex reporting |
Most buy-to-let mortgage lenders specifically want SPVs with SIC codes 68100 (buying/selling property) or 68209 (letting property).
Buy-to-let mortgages for companies
Fewer lenders offer company buy-to-let mortgages, and rates are typically 0.5-1% higher than personal mortgages. However, the gap has narrowed.
- Specialist lenders - The Mortgage Works, BM Solutions, Landbay, Fleet Mortgages
- Personal guarantees - Directors usually must guarantee the mortgage personally
- SPV requirement - Many lenders only accept property-only SPVs
- Arrangement fees - Often higher than personal mortgages
- Stress testing - Similar ICR requirements to personal buy-to-let
Use a broker experienced with limited company mortgages—not all high street lenders appear in comparison sites for company lending.
Running costs of a company
Budget £500-£2,000 per year in additional costs compared to personal ownership.
| Cost | Typical Amount | Frequency |
|---|---|---|
| Accountant | £500-£1,500 | Annual |
| Companies House filing | £13 | Annual |
| Registered office | £50-£150 | Annual (if using a service) |
| Company formation | £12-£100 | One-off |
| Bank account | £0-£15/month | Monthly |
These costs are tax-deductible but still reduce your net returns. For a single low-value property, the admin burden may outweigh tax savings.
Frequently asked questions
Can I transfer properties to a limited company without CGT?
Generally no. Transferring property to a company is a disposal at market value for CGT purposes. Section 162 Incorporation Relief may defer (not eliminate) CGT if you transfer an entire letting business and receive only shares in return. The company still pays SDLT. This is complex—get specialist tax advice.
Do I need an accountant for a limited company?
Not legally required, but strongly recommended. You must file annual accounts with Companies House and corporation tax returns with HMRC. Getting these wrong has penalties. Costs typically £500-£1,500 per year depending on property numbers and complexity.
What about extracting profits from a landlord company?
Profits retained in the company are taxed at 25%. When you extract money via salary, you pay income tax and NI. Dividends face dividend tax (8.75% basic, 33.75% higher, 39.35% additional rate). The combined tax on extracted profits often exceeds personal ownership rates—companies work best when reinvesting.
Can I be a director and employee of my landlord company?
Yes. Most landlord company owners are directors. Many take a small salary up to the NI threshold (around £12,570) to build state pension entitlement, plus dividends. The salary must reflect genuine work to be a deductible company expense.
Managing this yourself?
LandlordOS helps UK landlords stay compliant and organised:
- Automatic compliance reminders for Gas Safety, EICR, EPC
- Document storage with AI-powered certificate reading
- Tenancy tracking and rent management
LandlordOS tip
Run the numbers for YOUR situation. A higher-rate taxpayer with an 80% LTV mortgage buying a new property benefits enormously from incorporation. A basic-rate taxpayer with an unmortgaged inherited property does not. The decision is highly individual—generic advice rarely applies.