June 27, 2025
Article
We often get asked, “I’m thinking of purchasing a buy-to-let property, is this better to buy personally or through a limited company?”
Unfortunately, from a tax-efficient perspective and as a result of all the changes in recent years, this is no longer as clear-cut as it once was. It depends on the rental income you expect to receive and how much of the cash you require to support your income, along with factors such as your other income sources and if you are using a mortgage to purchase the property.
On top of that, you also need to consider commercial factors as to why you may prefer to hold property in your individual name or through a company, and of course lending requirements.
Firstly, from an income tax perspective, if property is held in your own name, you are taxed at the income rates of 20/40/45% on your profits generated in that year. Profits arising on property held within a company, will be taxed at the corporation tax (CT) rates, which in most cases will be 25%, but for smaller companies, who meet the threshold, you are taxed at 19%.
You will also be liable for income tax rates when you then extract the profits from the company as a dividend and charged at rates of 8.75%/33.75%/39.35%, based on the level of your other income. Therefore, if you pay income tax at basic rates, holding property personally would generally be the ‘cheaper’ option from an income tax perspective, as a lower rate of tax would be paid overall.
Any expenses incurred wholly and exclusively for the rental business are deductible under both ownership structures, except for mortgage interest and finance charges. If the property is held in a limited company, then a full deduction is an allowable expense and therefore reduces the profits chargeable to tax. However, if you hold the property personally, any mortgage interest is not allowable as an expense against the rental income, instead you would receive relief as a tax reducer. This is capped at 20% relief on finance charges, that reduces your tax liability. If you therefore pay income tax at higher rates, then you will still only obtain relief at 20% and not your usual marginal rates, so a company may be more advantageous.
From a Capital Gains Tax (CGT) perspective, if you held the property individually, you would pay CGT on the gain on disposal at a maximum of 24%, with the possibility of part of the gain being at 18% if you have any remaining basic rate band in the year of disposal. You also have an annual exemption, currently £3,000 per year, to use against your net gains. For property held in a company, the gain would be liable to CT at the same rates as mentioned above (25%, with possibility of 19%), however, companies do not receive an annual exemption.
If you are planning on growing a property portfolio, then it may be more beneficial for property to be purchased in a limited company for future planning and looking ahead to your objectives. This would hopefully prevent any duplication of Stamp Duty Land Tax (SDLT) which can often prove very expensive.
It is also worth noting that limited companies holding residential properties could also be liable to an annual tax under the ATED (Annual Tax for Enveloped Dwellings) if the property is worth more than £500,000. There are certain reliefs that can be claimed, depending on if the property is rented out to a third party etc, but annual reporting would still be required to claim the relief.
There are many other factors to consider, including the reporting requirements for each structure and the administration burden and costs of running a limited company. There is also the extraction of profits to consider, and whether you require all the profits generated to support your income or would be planning to leave part of the profits within the company to avoid an unnecessary income tax charge.
Together with your preferences to risk and whether the limited liability that a company would provide is the main factor to consider for you, all aspects need to be deliberated, not just the most tax-efficient structure. This coupled with lending requirements, which are often more expensive and difficult to obtain for new companies who do not have any financial history.
For a limited company to secure a mortgage, the borrower must be registered in the UK as a limited company, as LLPs and partnerships don’t qualify. Many lenders prefer Special Purpose Vehicles (SPVs) set up solely for property, though some will accept trading companies.
Lenders will ask for personal guarantees from the company directors, who usually need to be the majority shareholders. Typically, no more than two people holding over 20% of the shareholding each. Any changes to the company’s structure must be reported to the lender.
There is a benefit of reduced personal exposure. While guarantees are common, company debts will often remain separate from directors’ personal assets, and funds loaned to the company can often be repaid with low tax impact.
From the points above, you will see there is now no longer a “one size fits all” approach, each situation is different and needs to be assessed on a case-by-case basis. Therefore, if you are considering purchasing property and aren’t sure if you are best to own this personally or through a company then do please get in touch and we can assist you in looking how the ownership of the property should be structured to meet your aims and objectives. Our experienced advisers can also guide you through the process and help secure the right mortgage for your goals.