The decision to hold property through a limited company turns on a detailed comparison of the individual landlord tax position versus the corporate position — factoring in the tax saved on rental profit, the additional tax on extraction of that profit, any financing cost premium, and the setup costs. There is no universal answer: a basic-rate taxpayer with a small unencumbered portfolio may gain very little from a company, while a higher-rate or additional-rate taxpayer with significant mortgage finance and a growing portfolio may save substantially. The analysis requires the actual numbers — rental income, mortgage interest, total income from all sources, and planned investment horizon — to produce a reliable conclusion. The content below covers the key structural, tax, and legal considerations that every landlord should understand before making the decision.
Why a Property Investment Company? The Section 24 Mortgage Interest Problem
The Finance (No.2) Act 2015 introduced what is commonly called Section 24 — the restriction on individual landlords deducting mortgage interest from rental income before calculating taxable profit. From April 2020, higher-rate and additional-rate individual landlords can no longer deduct any mortgage interest — instead receiving only a 20% basic-rate tax credit on the interest paid. This means a higher-rate landlord paying £12,000 per year in mortgage interest on a property generating £20,000 rental income pays income tax on the full £20,000 (after other allowable expenses but not interest) and receives a £2,400 tax credit (20% of £12,000) — rather than the pre-2017 position of paying tax on £8,000 profit (income minus interest). A limited company is not subject to this restriction: a property held by a company can deduct all mortgage interest as a business expense, so the company only pays corporation tax on the net profit. At the current corporation tax rates (19% small profits; 25% main rate), this can result in a significantly lower tax charge on the rental income before extraction. However, the analysis does not end there — the extracted profit is taxed again. The most tax-efficient extraction method for owner-managers is typically: (a) a salary up to the National Insurance threshold (personal allowance: £12,570; NI primary threshold: £12,570 in 2024-25) — a deduction for the company and income tax free for the individual; plus (b) dividends from remaining retained profit — taxed at the dividend tax rates (8.75% basic; 33.75% higher; 39.35% additional rate) after the dividend allowance (£500 for 2024-25 and 2025-26). The combined corporation tax plus dividend tax still needs to be modelled against the individual landlord rate for your specific income and interest levels.
- Section 24 (Finance (No.2) Act 2015): individual landlords cannot deduct mortgage interest from rental income — only a 20% basic-rate tax credit; higher-rate taxpayers pay tax on gross rental income before interest deduction
- Corporate deduction: a limited company can deduct mortgage interest in full as a business expense; corporation tax is only paid on net profit after interest (19% for profits below £50,000; 25% for profits over £250,000 from April 2023)
- Salary extraction: paying a salary up to £12,570 (personal allowance) is tax-free for the director and deductible for the company; pay above this is subject to PAYE and employees' and employer's NI
- Dividend extraction: dividends are paid from after-tax corporate profit; dividend tax rates (8.75% / 33.75% / 39.35%) apply after the dividend allowance (£500 in 2025-26); avoid distributing all profit each year to benefit from lower cumulative tax
- The break-even calculation: a basic-rate taxpayer with low mortgage interest may pay MORE tax overall in a company structure (due to dividend tax on extraction) than as an individual — model the actual numbers before committing
SDLT, CGT, and the Cost of Getting Property into a Company
The most significant practical barrier to using a company structure for an existing portfolio is the cost of transferring properties into the company. Each transfer is treated as a disposal at market value for tax purposes: (a) SDLT: a transfer from an individual to a connected company is a land transaction subject to SDLT at full rates on the market value of the property (FA 2003 s.53 — connected party rule); the company pays SDLT at the higher rates (including the 3% additional dwellings surcharge) as if it had purchased the property at market value; there is no exemption or relief for transfers between connected individuals and companies unless a formal partnership qualifying for FA 2003 Sch.15 treatment existed before incorporation; on a £400,000 residential property the SDLT bill can easily exceed £22,000 including the surcharge; (b) CGT: the individual disposing of the property triggers a CGT charge on any gain (market value on transfer less base cost less improvements); only basic-rate CGT applies to gains on disposal to a connected company where the gain is already within the lower-rate band; potential reliefs: incorporation relief (s.162 TCGA 1992) if the property letting constitutes a 'business' — HMRC interprets this narrowly (they accept furnished holiday lettings qualify; they challenge whether passive portfolio letting qualifies); if incorporation relief does not apply, CGT on the full gain is due immediately; holdover relief (s.165 TCGA 1992) does not apply to residential property; (c) Existing mortgages: the lender's consent is required to transfer a mortgaged property to a company; most lenders will not consent — the practical reality is that the mortgage must be refinanced to a company buy-to-let mortgage on transfer; company buy-to-let mortgages typically require the company to be an SPV (SIC code 68100) with a 'clean' credit history and personal guarantees from directors; rates are generally higher than individual buy-to-let rates.
- SDLT on transfer at market value (FA 2003 s.53): a connected-party transfer to a company is charged on market value — the company pays full residential SDLT rates including the 3% additional dwellings surcharge; no exemption without a pre-existing qualifying partnership
- CGT on disposal: the individual triggers CGT on the gain at the date of transfer; incorporation relief (TCGA 1992 s.162) may defer CGT if the portfolio qualifies as a 'business' — HMRC accepts furnished holiday lets but challenges passive portfolio lettings; absent relief, CGT is due immediately
- Mortgage refinancing: existing mortgages cannot be transferred to a company without lender consent; in practice, properties must be refinanced to company buy-to-let mortgages on transfer — typically at higher rates with personal guarantees
- Best use of the company structure: the company structure works most efficiently when properties are purchased by the company from the outset — avoiding the transfer SDLT and CGT costs entirely; existing portfolios with large unrealised gains and low mortgage rates may never recoup the transfer costs
- ATED (Annual Tax on Enveloped Dwellings): if a company holds a single residential property worth more than £500,000, an annual ATED charge applies (from £4,150 for properties between £500k and £1m to £269,450 for properties over £20m); rental to an unconnected third party qualifies for ATED relief (ATED-RRF) but the relief must be claimed annually
Corporate Structure, Articles of Association, and Shareholder Considerations
A property investment company is most commonly incorporated as a UK private limited company (Ltd) under the Companies Act 2006 — either as a bespoke company or using a standard 'off the shelf' SPV. Key structural decisions: (a) Single asset vs portfolio SPV: some landlords hold each property in a separate SPV (for financing flexibility — lenders can take a charge over the SPV shares — and for asset protection); others hold all properties in a single company (lower admin costs; simpler bookkeeping); (b) Shareholders: the shareholders of the property company own the equity — shares can be allocated between spouses, civil partners, or family members to split dividend income across multiple taxpayers' lower-rate bands; a properly structured shareholders' agreement governs rights on sale, death, or relationship breakdown; alphabet shares (separate classes of shares for each shareholder) allow dividend voting flexibility; HMRC's settlements legislation (ITTOIA 2005 ss.619–648) can challenge dividend arrangements where the return is not genuinely at arm's length — particularly where one spouse contributes no service; (c) Directors: all directors have duties under the Companies Act 2006 (ss.171–177) including to act within powers, promote the success of the company, exercise independent judgment, avoid conflicts of interest, and not accept benefits from third parties; unpaid directors do not need to be on payroll; (d) Accounting and compliance: all companies must file annual accounts and a confirmation statement with Companies House; the accounts are publicly available; property investment companies must apply FRS 102 (or FRS 105 for micro-entities); investment properties under FRS 102 are carried at fair value with changes recognised in profit and loss — creating a 'fair value movement' gain or loss each year that is taxable for corporation tax purposes; (e) Business Asset Disposal Relief (BADR — formerly Entrepreneurs' Relief): BADR reduces CGT to 10% on qualifying gains; BADR does not apply to the disposal of shares in a property investment company (as of HMRC's current position) unless the company is genuinely trading rather than investing; pure property investment companies do not qualify.
- SPV structure (SIC 68100): lenders typically require the company to be a pure property SPV with SIC code 68100 (buying and selling own real estate); a company with mixed activities (e.g. property and another trade) may not qualify for company buy-to-let mortgages
- Alphabet shares: different share classes for each director/shareholder allow separate dividend voting resolutions — useful for income splitting; ensure the shareholder agreement governs exit and death scenarios
- Settlements legislation risk (ITTOIA 2005 ss.619–648): HMRC can challenge arrangements where a spouse holds shares but contributes no service and the dividends are disproportionate to any genuine contribution; the Jones v Garnett [2007] UKHL 35 (Arctic Systems) rules apply
- FRS 102 fair value accounting: investment properties are carried at fair value; annual uplifts are taxable for corporation tax (with an exception election available) — this can create a corporation tax liability even where no property has been sold
- BADR does not apply to property investment companies: the 10% CGT rate on disposal of shares does not apply to pure property investment companies; gains on sale of company shares are taxed at 18% / 24% CGT (from April 2024 rates on residential gains within a company disposed of as a going concern)
When a Property Company is Right — and When It Is Not
The property investment company structure is most beneficial when: (a) the landlord is a higher-rate or additional-rate taxpayer with significant mortgage finance — the full mortgage interest deduction in the company, combined with a lower corporation tax rate, produces a substantially lower tax bill than the individual position subject to Section 24 restriction; (b) the intention is to accumulate profit within the company (retain and reinvest rather than extract) — undistributed corporate profits are taxed once at the corporation tax rate; extraction adds a second layer of dividend tax; (c) properties are to be purchased through the company from the outset — avoiding the transfer SDLT and CGT friction costs of transferring an existing portfolio; (d) succession planning is relevant — shares in a property company can be gifted to children or held in trust (with Business Property Relief potentially applying if the company qualifies as a trading business — though HMRC challenges this for pure investment companies). The structure is typically NOT beneficial when: (a) the landlord is a basic-rate taxpayer (Section 24 does not produce the same penalty; the individual rate after the basic-rate credit may be comparable to or lower than the corporate plus dividend extraction rate); (b) the portfolio is unencumbered (no mortgage interest to deduct — the company provides less advantage); (c) the existing mortgage rate is much lower than available company buy-to-let rates — the extra borrowing cost can negate the tax saving; (d) properties have large unrealised gains and the transfer SDLT and CGT costs would take many years to recover through tax savings; (e) the landlord intends to sell within a short horizon — the corporate extraction costs on sale (corporation tax on gain; dividend tax on proceeds) may exceed the saving on rental income during the holding period. The decision requires a 10–15 year financial model built on the actual numbers.
- Most beneficial: higher-rate or additional-rate taxpayer; significant mortgage debt (full interest deduction vs Section 24 restriction for individuals); intention to accumulate in company; purchasing new properties rather than transferring existing
- Least beneficial: basic-rate taxpayer; low or no mortgage interest; short investment horizon; large unrealised gains on existing portfolio making transfer SDLT and CGT costs prohibitive
- Model the extraction cost: profit retained in the company is taxed at 19–25%; extraction as a dividend adds 8.75–39.35% on top; the combined rate for a higher-rate taxpayer can be 42–52% — comparable to or higher than the individual rate for basic-rate income
- Mortgage rate premium: company buy-to-let mortgages typically carry a 0.5–1.0% rate premium over equivalent individual products; on a large portfolio this annual extra cost directly offsets the tax saving; always compare on an after-tax, after-financing-cost basis
- Professional advice is essential: the interaction of Section 24, corporation tax, dividend tax, SDLT, CGT, and financing costs is complex; a specialist property tax accountant or chartered tax adviser should model the individual analysis before any commitment to a company structure
Frequently asked questions
Can I transfer my existing buy-to-let properties into a limited company?+
Yes, but it is usually expensive to do so. Each transfer is treated as a disposal at market value — the company pays SDLT at full rates including the 3% surcharge (FA 2003 s.53), and you pay CGT on any gain (unless incorporation relief under TCGA 1992 s.162 applies). Existing mortgages must also be refinanced to company buy-to-let products. For most landlords with large unrealised gains and low existing mortgage rates, the transfer costs mean the company structure works best for new purchases.
What is the corporation tax rate on rental profits in a property company?+
From April 2023, a company pays 19% corporation tax on profits below £50,000 and 25% on profits over £250,000 (with marginal relief between £50,000 and £250,000). The key advantage over an individual is that the company deducts mortgage interest in full before calculating taxable profit — there is no Section 24 restriction for companies.
Do I pay SDLT when buying a property through a company?+
Yes. A company buying a residential property pays SDLT at the standard rates plus the 3% additional dwellings surcharge — the same as an individual purchasing a second property. First-time buyer SDLT relief does not apply to companies. The company also pays the annual ATED charge if the property is worth more than £500,000 (though a letting-related ATED relief applies where the property is let to an unconnected third party).
Is a property investment company right for a basic-rate taxpayer?+
Probably not. A basic-rate taxpayer receives a 20% mortgage interest tax credit that largely cancels the Section 24 restriction — their individual tax position may be similar to the corporate position. After adding dividend tax on extraction, the total combined tax in a company can match or exceed the individual rate. The company structure works most clearly for higher-rate or additional-rate taxpayers with significant mortgage interest.
What is Business Asset Disposal Relief and does it apply to property companies?+
Business Asset Disposal Relief (BADR — formerly Entrepreneurs' Relief) reduces CGT to 10% on qualifying gains on disposal of a business or shares in a trading company. HMRC's position is that pure property investment companies do not qualify as trading companies — so BADR does not apply to the sale of shares in a property investment company. Gains on disposal are taxed at 18% or 24% (from 2024-25 rates for residential-related gains).