Why Landlords Use Companies
The main driver is taxation. Since April 2020, individual landlords can no longer deduct mortgage interest from their rental income before calculating tax. Instead, they receive a basic-rate tax credit of 20%. For higher-rate and additional-rate taxpayers, this significantly increases the tax burden on rental income.
Companies, by contrast, can still deduct mortgage interest as a business expense before calculating corporation tax. Corporation tax is currently charged at 25% for profits over £250,000, and a small profits rate of 19% applies for profits up to £50,000, with marginal relief in between. For landlords with substantial mortgage interest, this structure can produce meaningful tax savings.
Mortgage Options for Limited Companies
Limited company buy-to-let mortgages are widely available, though the choice of lenders is smaller than for personal BTL mortgages. Rates are typically slightly higher — often 0.25% to 0.5% more — and arrangement fees can be higher too.
Most lenders require the company to be a special purpose vehicle (SPV) set up specifically for property investment, with Standard Industrial Classification (SIC) codes related to property. The directors must provide personal guarantees, meaning they remain personally liable for the mortgage if the company cannot pay.
Setting Up the Structure
Establishing an SPV for buy-to-let is straightforward. You register a limited company with Companies House, choosing appropriate SIC codes (commonly 68100 for buying and selling or 68209 for letting and operating). The cost of incorporation is minimal, typically under £50.
You will also need a business bank account, and it is advisable to appoint an accountant experienced in property company taxation. The ongoing administrative burden — annual accounts, corporation tax returns, confirmation statements — is greater than for personal ownership, and accountancy costs are typically £500 to £1,500 per year.
Drawbacks and Considerations
Transferring existing personally owned properties into a company triggers stamp duty land tax (SDLT) on the market value, plus potential capital gains tax on any increase in value since you bought the property. This makes the company structure most suitable for new purchases rather than existing portfolio transfers.
Extracting profits from the company is also less straightforward than personal ownership. Dividends are subject to dividend tax, and salary payments attract income tax and National Insurance. Careful tax planning is needed to ensure the company structure actually saves you money after accounting for all costs, including higher mortgage rates and accountancy fees.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.