For many years, most UK landlords simply bought rental properties in their own names. That began to change when tax rules on mortgage interest were tightened, and today a growing number of landlords buy through limited companies instead. But a limited company is not automatically the better option. The right structure depends on your income, your borrowing, your long-term plans and how many properties you own or intend to buy. This guide explains the key differences so you can have a more informed conversation with your accountant before you decide.
Why This Decision Matters
How you own a buy-to-let property affects how much tax you pay on rental profits, how you borrow, how you take money out of the business and what happens when you sell or pass properties on. Because changing ownership later can be expensive, it pays to think carefully before you buy.
Owning Property in Your Personal Name
When you own a rental property personally, rental profits are added to your other income and taxed at your marginal rate of Income Tax. For basic rate taxpayers, this can be relatively straightforward. For higher and additional rate taxpayers, it can mean a large share of profits goes in tax.
Since the mortgage interest relief changes, often called Section 24, were fully phased in from April 2020, individual landlords can no longer deduct mortgage interest from rental income as an expense. Instead, they receive a tax credit worth 20% of their finance costs. For higher rate taxpayers with significant borrowing, this can increase their tax bill considerably. In some cases, it can even push landlords into a higher tax band.
The Benefits of Personal Ownership
Personal ownership is simpler. There is no company to set up, no annual accounts to file at Companies House and fewer administrative costs. Mortgage choice is usually wider, and rates can be lower than for company borrowing.
When you sell a personally owned property, any gain is subject to Capital Gains Tax, and you can use your annual exempt amount. For landlords with one or two properties, low borrowing or income within the basic rate band, personal ownership often remains the sensible choice.
Owning Property Through a Limited Company
Many landlords now use a special purpose vehicle, or SPV, which is a limited company set up specifically to hold property. The company owns the properties, receives the rent and pays Corporation Tax on its profits rather than Income Tax.
Crucially, companies can still deduct mortgage interest and other finance costs as a business expense. For landlords with high borrowing, this is often the main reason to consider a company structure.
The Benefits of a Limited Company
Corporation Tax rates are generally lower than higher and additional rates of Income Tax, particularly for smaller companies. Profits that stay in the company can be reinvested to buy more properties, which can help landlords grow a portfolio more quickly.
A company structure can also offer flexibility for succession planning. Shares can sometimes be passed to family members more easily than individual properties, although inheritance planning always requires specialist advice.
The Drawbacks of a Limited Company
Getting money out of a company is not tax-free. If you want to use profits personally, you will usually take them as dividends or salary, and these are taxed again. For landlords who rely on rental income to live on, the overall tax saving may be smaller than expected.
Company buy-to-let mortgages often come with higher interest rates and fees, and lenders usually require directors to provide personal guarantees. There are also ongoing costs for accountancy, filing annual accounts and meeting company obligations.
Transferring Existing Properties Into a Company
If you already own properties personally, moving them into a company is not a simple paperwork change. In most cases, the transfer is treated as a sale at market value. This can trigger Capital Gains Tax on any increase in value and Stamp Duty Land Tax for the company, including higher rates for additional properties. You would also normally need to redeem your existing mortgages and take out new company borrowing.
Some reliefs may be available in specific circumstances, but they come with strict conditions. This is an area where professional tax advice is essential.
Questions to Ask Before You Decide
- What tax band are you in, and is that likely to change?
- How much of your portfolio is financed with mortgages?
- Do you need the rental income to live on, or will you reinvest it?
- How many properties do you own now, and how many do you plan to buy?
- Are you buying new properties, or considering moving existing ones?
- What are your plans for passing properties on in the future?
A Mixed Approach
Some landlords keep existing properties in their personal names to avoid transfer costs, while buying new properties through a company. This can balance the benefits of both structures, although it means managing two sets of finances and tax obligations.
Get the Right Advice
Tax rules change regularly, and every landlord’s situation is different. Speak to an accountant who specialises in property before making a decision. A mortgage broker with buy-to-let experience can also explain how each structure affects your borrowing options.
Final Thoughts
Choosing between personal and company ownership is one of the most important structural decisions a landlord makes. Whatever route you take, investing in the right property at the right price matters just as much. Working with experienced estate agents in Walsall can help you identify local properties with strong rental potential and give you realistic figures to share with your accountant when planning your next purchase.
