If you’re considering a buy-to-let property investment, you may have wondered whether it would be worth buying the property through a Ltd company. In this article we explain why some consider this option, the pros and cons, and the tax implications.
Buying personally or through a Ltd company? What’s the difference?
To put it simply, the main consideration is tax rates – for rental income from property in your name as an individual, you would pay income tax, but for rental income from property owned by your Ltd company, the Ltd company pays corporation tax.
A limited company which owns a UK residential property worth more than £500,000 can fall within the Annual Tax on Enveloped Dwellings (ATED) rules. However, a genuine buy-to-let property let commercially to an unconnected third party will normally qualify for property rental business relief, meaning no ATED charge is payable. An ATED return may still need to be filed to claim the relief. You can read more in HMRC’s ATED guidance.
Since April 2020, individual landlords have no longer been able to deduct residential mortgage finance costs from rental income in the same way as a company. Instead, relief is given as a basic-rate tax reduction, currently 20%.
This means some individuals, particularly higher or additional-rate taxpayers with significant mortgage interest, may find the company route more attractive.
Of course, this isn’t a one size fits all situation and it very much depends on individual circumstances; so an understanding of how each scenario works for you and how that impacts the tax you will owe is advisable before you decide.
Can you transfer property you already own to a Ltd company?
Yes, it is possible to transfer existing property to your Ltd company, bearing in mind that this is then in effect a sale from yourself to your Ltd company.
There may therefore be Capital Gains Tax due personally, as well as legal and mortgage costs involved in the ownership transfer. The purchase by the company will also normally be subject to Stamp Duty Land Tax (SDLT) in England or Northern Ireland.
Companies buying residential property generally pay the higher residential rates of SDLT, including the 5% surcharge. There is also a special 17% rate which can apply where a company buys certain residential property worth more than £500,000, although relief is available for qualifying property rental businesses. HMRC explains the rules in its guidance for corporate buyers.
Scotland and Wales have their own property transaction taxes rather than SDLT.
In some cases, Incorporation Relief may be available where an existing property business is transferred to a company in return for shares. This is not automatic simply because you own one or more rental properties, and the conditions need to be considered carefully. For transfers made on or after 6 April 2026, the relief must also be claimed. You can read more in HMRC’s Incorporation Relief guidance.
How would I go about buying a property through a Ltd Company?
When looking to mortgage the property, you may find that most lenders will prefer to lend to a Special Purpose Vehicle (SPV) – this is a company set up specifically for the sole purpose of the property’s buy-to-let activities. The mortgage would be in the Ltd Company’s name.
If the property is to be mortgage-free, it is possible for this to be purchased by your existing Ltd company should it have the available funds.
It’s also worth noting here the responsibilities when running a Ltd company such as the submission of accounts, corporation tax returns and other administrative duties. You can read more in our guide to the disadvantages of running a limited company.
What are the advantages?
- Tax on rental profits – Rental profits belong to the company and are subject to Corporation Tax rather than personal Income Tax. The Corporation Tax rate will depend on the company’s level of profit. This comparison can be particularly attractive where profits are being left in the company to fund further property purchases. If you want to take the profits out personally, however, there may be further tax to pay, so the Corporation Tax rate should not be looked at in isolation.
- Mortgage interest – To calculate the Ltd company profit, allowable expenses are deducted. For Ltd company property owners, mortgage interest payments are normally an allowable expense, so a heavily mortgaged property can produce a very different tax result inside a company. For properties owned personally, residential mortgage interest cannot be deducted from rental profits in the same way. Instead, relief is restricted to a basic-rate tax reduction, currently 20%. As the interest is used as a tax reducer and not as an expense, taxable income can also be higher, which may push you into a higher tax band or affect other income-related thresholds. HMRC has examples of how the finance cost restriction works.
- Increased flexibility – An option is to keep profit in the Ltd company to enable you to purchase a second property, which can be one of the main attractions of using a company where you plan to build a portfolio rather than draw all of the rental income personally.
- Succession planning – Holding property through a company can sometimes provide more flexibility when planning how ownership is passed on, because the asset being transferred may be shares rather than the property itself. However, this does not automatically make the Inheritance Tax position better. Property investment companies will often fall within the rules which exclude businesses mainly holding investments from Business Relief, so specialist advice is important before making changes for inheritance purposes.
- Limited liability – with the property owned by your Ltd company as opposed to you personally, liabilities connected with the property generally sit within the company, provided of course you have at all times acted in good faith and adhered to your duties as a Director. However, many specialist buy-to-let lenders require directors to give personal guarantees, so this does not necessarily remove all personal financial exposure.
What are the disadvantages?
- Mortgage availability and rates – Not all mortgage lenders will provide mortgages to Ltd companies, and you may have to use a specialist SPV lender. Mortgage interest rates and arrangement fees can also be higher than those available to you personally.
- No personal CGT annual exemption – A company does not have an individual’s Capital Gains Tax annual exempt amount. Instead, gains made when the company sells a property are generally included when calculating the company’s Corporation Tax liability.
- Running costs – as mentioned, there are certain responsibilities that come with being a Ltd company director, one of those being the filing requirements for HMRC and Companies House, such as annual accounts, Corporation Tax returns and a confirmation statement. If you’re not confident working through this yourself you’ll need to enlist the help of an accountant.
- Restricted access to income – income received by your Ltd company isn’t as instantly available to you as income received personally. Money normally needs to be taken from the company in an appropriate way, such as salary, dividends or repayment of money already owed to you.
- Potential tax on extracting profits – even where the company pays less tax on rental profits than you might have paid personally, there can be a further tax charge when you take those profits out of the company. This is one reason the company route tends to be more attractive where profits are being retained and reinvested rather than withdrawn each year.
- Tax when the property is eventually sold – when the company disposes of the property, any taxable gain will normally be subject to Corporation Tax. If you then want to take the remaining proceeds out of the company personally, there may be another tax charge depending on how the money is extracted. It’s important to consider your eventual exit strategy as well as the tax position while you own the property.
Whether buying property personally or via a Ltd company, what’s best for you boils down to your income, how much borrowing is involved, what you intend to do with the rental profits and your longer-term plans for the property.
If you are a higher-rate taxpayer, have significant mortgage interest and intend to leave profits in the company to reinvest, the company route can be worth considering. But owning property personally may still be the better option in other circumstances.
If you’re considering buying a property through a company, or transferring property you already own, it’s worth looking at the numbers before making the purchase rather than trying to change the structure afterwards.
