Section 24 and the Corporation Tax Advantage
The Section 24 mortgage interest restriction (ITTOIA 2005 ss.272A-272B; fully effective from 2020-21) replaced full interest deductibility for individual landlords with a 20% basic rate tax credit. For higher rate (40%) and additional rate (45%) taxpayers with significant leverage, this dramatically increases the effective tax rate on rental income — on some leveraged portfolios it creates a tax liability on properties running at an economic loss. A limited company is not subject to s.24: it deducts mortgage interest in full as a business expense before calculating corporation tax (19% on profits below £50,000; 25% above £250,000; marginal relief between thresholds). Retained profits compound at the lower corporation tax rate — the company acts as a tax deferral wrapper. Extraction: dividends face tax at 8.75% (basic), 33.75% (higher), or 39.35% (additional rate) — plus the underlying corporation tax, the total extraction cost can exceed the individual rate for modest portfolios. The company route primarily benefits higher and additional rate taxpayers with significant mortgage leverage.
SPV Setup, SDLT, and Incorporation of Existing Properties
SPV setup: use SIC code 68100 (buying/selling own real estate) or 68209 (letting own/leased real estate) — lenders and HMRC check the SIC code. File confirmation statements, annual accounts (at Companies House within 9 months), and CT600 (at HMRC within 12 months) annually; pay corporation tax within 9 months + 1 day. The 3% SDLT surcharge applies to all residential purchases by a company — no main residence exception; model this cost in the acquisition budget. Personal guarantees: all limited company BTL lenders require personal guarantees from directors/shareholders; the company structure does not protect personal assets from mortgage default. Incorporation of existing properties: transfer to a connected company triggers CGT at market value (18%/24% on the accrued gain) and full SDLT plus the 3% surcharge. Section 162 TCGA 1992 (incorporation relief) is generally not available for passive residential letting portfolios — HMRC does not accept them as a qualifying 'business'. Practical strategy: hold existing properties personally; buy all future acquisitions through the SPV to avoid triggering CGT and SDLT. Company mortgages: most major BTL lenders offer company products; rates are typically 0.3-1.0% higher than individual BTL; 75% LTV typical.