The Section 24 mortgage interest restriction (phased in from 2017-18, fully effective from 2020-21) replaced full interest deductibility for individual landlords with a 20% basic rate tax credit. For higher and additional rate taxpayers, this dramatically increased the effective tax rate on leveraged rental income. The company route avoids s.24 entirely, a company deducts mortgage interest as a business expense before calculating its corporation tax profit. For landlords building or expanding a portfolio, running the numbers on the company structure is now essential. But the decision to incorporate (or to buy future properties through a company while retaining existing individual holdings) is complex and irreversible without significant cost, CGT and SDLT on incorporation apply unless specific reliefs are available.
Why Use a Limited Company, Section 24 and Corporation Tax
The core tax advantage of the company route: (a) Section 24 restriction (ITTOIA 2005 ss.272A-272B): individual landlords cannot deduct mortgage interest from rental income; instead they receive a 20% tax credit equal to the basic rate of tax on the finance costs; for a higher rate taxpayer (40%) or additional rate taxpayer (45%) with significant mortgage interest, this restriction creates effective tax rates far above the headline rates; a basic rate taxpayer (20%) is unaffected by s.24 in cash terms but can still suffer the restriction where the restriction pushes their total income above the higher rate threshold; (b) Company deductibility: a limited company (subject to corporation tax) deducts mortgage interest in full as a business expense before calculating its taxable profit; corporation tax is then charged at 19% (profits up to £50,000) or 25% (profits above £250,000), with marginal relief between these thresholds (from April 2023); (c) Retained profits: profits retained in the company are taxed at 19-25% (vs 40-45% for individual higher rate taxpayers), the company acts as a tax deferral wrapper if profits are not extracted immediately; (d) Extraction: profits taken out as a dividend are subject to income tax at dividend rates: 10.75% (basic), 35.75% (higher), 39.35% (additional rate) from 6 April 2026; salary extraction up to the personal allowance and National Insurance threshold is generally tax-efficient; (e) Total tax cost: the total tax cost of the company route (corporation tax + dividend tax on extraction) often exceeds the individual route for basic rate taxpayers with modest portfolios, the company primarily benefits higher and additional rate taxpayers with significant leverage.
- Section 24 does not apply to companies: full mortgage interest deductibility; the primary tax advantage of the company route for leveraged landlords
- Corporation tax 19-25%: lower than higher rate income tax (40%) during the accumulation phase, creates a tax deferral advantage for retained profits
- Dividend extraction cost: profits distributed as dividends face dividend tax at 10.75%/35.75%/39.35%, total tax on extracted profits can exceed the individual rate
- Company route primarily benefits: higher and additional rate taxpayers with significant leverage; basic rate taxpayers with modest gearing often pay more total tax via a company
- Run the numbers: model both routes for your specific tax position, leverage, rental yield, and extraction strategy before deciding
SPV Structure, Setting Up and Operating the Company
A special purpose vehicle (SPV) is a limited company formed specifically to hold property: (a) SIC code: HMRC expects SPV buy-to-let companies to use SIC code 68100 (buying and selling of own real estate) or 68209 (other letting and operating of own or leased real estate); lenders check SIC codes when assessing BTL company mortgage applications; (b) Directors and shareholders: typically the landlord (and spouse/partner) are both directors and shareholders; a property-holding structure often puts parents and adult children as shareholders to enable tax-efficient profit distribution to lower-rate taxpayers; (c) PSC register: all companies must maintain a register of persons with significant control (PSC); update Companies House within 14 days of any change; (d) Annual accounts and corporation tax return: the company must file annual accounts at Companies House and a CT600 corporation tax return at HMRC within 12 months of the accounting period; corporation tax is due within 9 months and one day of the accounting period end (for companies with profits below the quarterly instalment threshold); (e) Stamp Duty Land Tax on initial purchase: the company pays SDLT at the standard rates plus the 5% surcharge (as it is an 'additional' purchase for SDLT purposes, there is no main residence exemption for a company); (f) Mortgage arrangement: lenders assess the company's rental income vs mortgage costs; lenders typically require a personal guarantee from the director/shareholder; limited company BTL mortgages carry higher interest rates and fees than individual BTL mortgages (typically 0.3-1.0% higher); (g) Companies House filing: confirmation statement annually; accounts; PSC register; director changes, failure to maintain causes Companies House to mark the company as 'overdue' and can ultimately lead to striking off.
- SIC code 68100 or 68209: use the correct SIC code at incorporation, lenders and HMRC check it; wrong SIC code can delay mortgage applications
- 5% SDLT surcharge applies to companies: no main residence exception for corporate purchasers, all residential purchases attract the surcharge
- Annual accounts and CT600: file accounts at Companies House within 9 months of year end; CT600 at HMRC within 12 months; pay corporation tax within 9 months + 1 day
- Personal guarantees: all limited company BTL mortgage lenders require personal guarantees from the directors/shareholders, the company structure does not protect personal assets from mortgage default
- Higher mortgage rates: expect 0.3-1.0% higher interest rates on company BTL mortgages vs individual BTL; model this higher cost against the s.24 saving
Incorporation of Existing Properties, CGT and SDLT
Transferring existing personally owned properties into a limited company is the most complex tax question in residential property: (a) CGT on transfer: a transfer from an individual to a connected company (e.g. the individual's own SPV) is a disposal for CGT purposes, valued at market value (TCGA 1992 s.17); CGT at 18%/24% (residential property rates from October 2024) is potentially chargeable on the gain since acquisition; (b) Business property relief for CGT (TCGA 1992 s.162, incorporation relief): TCGA 1992 s.162 allows CGT to be held over on transfer of a business to a company in exchange for shares; the question is whether a residential letting portfolio qualifies as a 'business', HMRC does not accept that passive rental income from a buy-to-let portfolio is a 'business' for s.162 purposes; professional letting businesses (e.g. furnished holiday lets, or portfolios with active management amounting to a business) may qualify; but most standard BTL portfolios do not qualify for s.162 relief; (c) Holdover relief under TCGA 1992 s.165: available only for qualifying business assets; residential BTL portfolios generally do not qualify; (d) SDLT on incorporation: the transfer from individual to company is a land transaction for SDLT purposes; full SDLT (at the rates applicable to the purchase price / market value) plus the 5% surcharge is chargeable, this is often the deal-killer for incorporating existing portfolios; no specific SDLT relief is available for incorporation of a residential letting portfolio; (e) Practical approach: most landlords do not incorporate existing holdings; instead they hold existing properties personally and purchase all future acquisitions through the SPV; this avoids triggering CGT and SDLT on the transfer.
- CGT on incorporation at market value: no general holdover or incorporation relief for standard residential BTL portfolios, CGT at 18%/24% on the accrued gain is payable
- SDLT on incorporation: full SDLT plus 5% surcharge is chargeable on the market value of properties transferred to the company, often the decisive cost reason not to incorporate
- s.162 incorporation relief: only available where the portfolio constitutes a 'business', HMRC does not accept passive residential letting as a business for this purpose
- Practical strategy: hold existing properties personally; buy future acquisitions through the SPV, avoids the CGT and SDLT crystallisation event
- Partnership into company: some portfolio landlords hold property in a genuine partnership (with shared management) and seek to use s.162 to transfer into a company, specialist advice required; HMRC is active in challenging these arrangements
Inheritance Tax, Extraction Strategy, and Mortgage Availability
Additional considerations for the company structure: (a) IHT: shares in a property investment company are subject to IHT at 40% (above the nil rate band) on the shareholder's death; there is no Business Property Relief (BPR) for investment companies holding residential property, BPR requires a trading business; the IHT position is the same whether properties are held personally or through an SPV; some planning structures use trusts to hold SPV shares to remove value from the estate, but this requires careful planning; (b) Dividend extraction strategy: retained profits in the company are untaxed until distributed; a common strategy is: (i) retain profits during high-income years to minimise dividend extraction; (ii) distribute dividends in lower-income years (e.g. retirement); (iii) use spouse/family member shareholders to distribute to lower-rate taxpayers (HMRC anti-avoidance rules, settlements legislation, must be considered where the income-splitting is not at arm's length); (c) Company mortgages, availability and rates: since 2016, lenders have dramatically expanded their limited company BTL product range; most major BTL lenders offer company products including Barclays, NatWest, Nationwide, Santander, specialist lenders (Paragon, Fleet Mortgages, The Mortgage Works); typical LTV 75%; ICR typically 125-145% at a stress rate; personal guarantees universal; company credit check and review of accounts typically required; (d) Mortgage interest relief in the company: the company deducts all mortgage interest and finance costs (arrangement fees amortised over the loan term) as a trading expense before corporation tax, no restriction.
- IHT: no Business Property Relief for residential investment companies, same IHT exposure as individual ownership; trust structures may help but require specialist planning
- Dividend distribution: tax-efficient to distribute in lower-income years; use multiple shareholders (spouse/family) to distribute to lower-rate taxpayers, settlements legislation compliance required
- Company mortgage availability: most major BTL lenders offer limited company products; rates 0.3-1.0% higher than individual; 75% LTV typical; personal guarantee required
- Mortgage interest fully deductible: no s.24 restriction, the full finance cost is deducted before computing corporation tax profit
- Total return analysis: model acquisition costs (5% SDLT surcharge), higher mortgage rates, running costs (accountancy, Companies House filing), extraction tax, against the s.24 saving, the net benefit varies significantly by portfolio size and leverage
Frequently asked questions
Should I buy my next property through a limited company or personally?+
For higher and additional rate taxpayers with significant mortgage leverage, the limited company route is generally more tax-efficient due to the Section 24 restriction on individual landlords. For basic rate taxpayers with modest leverage, the higher mortgage rates and extraction costs in a company often outweigh the Section 24 saving. The decision also depends on your long-term plan: if you intend to accumulate and retain rental profits rather than extract them immediately, the company's lower corporation tax rate (19-25%) offers a deferral advantage. Take professional tax advice tailored to your specific income level, leverage, portfolio size, and extraction strategy before deciding.
Can I transfer my existing properties into a limited company?+
Yes, but the tax costs are usually prohibitive. Transferring residential properties to a connected company triggers CGT at market value (18%/24% on the accrued gain) and SDLT at the full residential rates plus the 5% surcharge. For a portfolio with significant accrued gains, these combined costs typically make incorporation uneconomic. Section 162 TCGA 1992 (incorporation relief) and holdover relief under s.165 are generally not available for passive residential letting portfolios. The standard approach is to hold existing properties personally and use a limited company only for future acquisitions.
What mortgages are available for buy-to-let limited companies?+
Most major BTL lenders now offer limited company mortgage products, including Barclays, NatWest, Paragon, Fleet Mortgages, The Mortgage Works (Nationwide), Santander, and many specialist lenders. Company BTL mortgages typically require: a special purpose vehicle (SPV) company with the correct SIC code (68100 or 68209); personal guarantees from all directors/shareholders; an ICR of 125-145% at a stress interest rate; company accounts (for companies with a trading history); and LTV up to 75%. Interest rates are typically 0.3-1.0% higher than equivalent individual BTL products, model this cost differential against the Section 24 saving.
Can I pay a salary to myself from a buy-to-let company?+
Yes, a director of a property SPV can pay themselves a salary. The most tax-efficient salary level is typically up to the National Insurance secondary threshold (£9,100 in 2025/26) to avoid employer National Insurance contributions, or up to the personal allowance (£12,570) to maximise income tax efficiency without triggering significant NI. Salary is a deductible business expense for the company (reducing corporation tax), so the combined tax cost can be lower than dividend distribution for the first £12,570. Beyond this level, dividends are usually more tax-efficient. Take advice from a property accountant to model the optimal split between salary and dividends for your specific position.