If you are a higher rate landlord paying tax on rent you never actually keep, a limited company can be the difference between losing half your mortgage interest to Section 24 and deducting all of it. That is why buy-to-let through a UK company has gone from niche to mainstream since the Section 24 finance cost restriction fully phased in for the 2020-21 tax year. In 2026 most new BTL purchases by professional landlords go through a company, and a large minority of personal-name portfolios have already been incorporated. The case is real for the right landlord, but it is not universal and it is not free. Get the wrong structure for your circumstances and you pay more in compliance fees, mortgage premium and dividend tax than you ever save. Here is when the company route puts money in your pocket, when it costs you more than it saves, and how to handle the transfer if it stacks up for your portfolio.
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What changes when you hold BTL through a company
A buy-to-let limited company is a UK company (typically incorporated under Companies Act 2006) whose business is to own and let residential property. The company, not you, is the legal owner of each property. It collects the rent, pays the expenses, makes a profit, pays corporation tax on that profit, and pays any surplus out to you and the other shareholders as dividends. You then have a separate personal tax bill on those dividends and on any salary the company pays you.
Four things change against owning in your own name:
- Tax rate. Profits suffer corporation tax (19% to 25%) inside the company, not your personal marginal rate (up to 45%) directly. Extraction as dividends incurs a further 10.75% to 39.35% personal tax.
- Mortgage interest. Fully deductible against company profit. Section 24 finance cost restriction does not apply to companies.
- Capital gains. Company gains are taxed at the corporation tax rate (no separate CGT rates for companies). The company has no annual exempt amount equivalent to the £3,000 personal CGT AEA.
- Compliance. Annual statutory accounts at Companies House, an annual CT600 return to HMRC, a confirmation statement, and payroll if you take a salary. None of it is hard, but it is real cost.
When does the limited company route actually save tax?
The company case is strongest if you tick most of these boxes:
- You pay income tax at the higher rate (40%) or additional rate (45%)
- You carry material mortgage interest that would otherwise be restricted under Section 24
- You want to keep profit inside the business to grow the portfolio rather than draw it all out personally
- You are in it for the long haul (5+ years), so the one-off setup costs have time to wash through
- You have no large latent capital gains in property you already own personally, so the transfer cost, even with Section 162 relief, does not dwarf the future saving
The case weakens or breaks if:
- You are a basic rate (20%) taxpayer (Section 24 stings less, and dividend extraction adds tax you would not pay holding personally)
- You plan to live off all the rental income (the extraction tax eats the advantage)
- You hold only one or two properties, where the annual compliance cost outweighs the saving
- You have large latent gains and Section 162 relief is unavailable or uncertain
- You plan to sell within 1 to 2 years (the transaction costs never amortise)
Worked comparison: personal versus company over 10 years
Say you are a higher rate taxpayer (40% marginal) and you buy £600,000 of property with a £400,000 interest-only mortgage at 5.5% (£22,000 a year interest). Gross rent is £36,000 a year. Other expenses (insurance, agent, repairs, council tax voids) come to £4,000.
| Position | Personal ownership | Limited company ownership |
|---|---|---|
| Gross rent | £36,000 | £36,000 |
| Less other expenses | (£4,000) | (£4,000) |
| Less mortgage interest (allowable inside company only) | n/a | (£22,000) |
| Taxable profit | £32,000 | £10,000 |
| Tax at 40% (personal) / 19% (company small profits rate) | £12,800 | £1,900 |
| Section 24 tax reducer (£22,000 × 20%) | (£4,400) | n/a |
| Net tax in the year (before any extraction) | £8,400 | £1,900 |
| Net cash after tax (profit £10,000 minus tax) | £1,600 | £8,100 |
| If all retained company profit later extracted as dividend (higher rate) | n/a | £8,100 × 35.75% = £2,896 |
| Net cash after eventual dividend extraction | £1,600 | £5,366 |
The company route leaves you roughly £3,766 better off in net annual cash even after you pull everything out as dividends. Keep the profit inside the company instead of dragging it out, and the advantage rises to £6,500 a year. Reinvested in more property over 10 years, that compounds into real money.
The picture flips if you are a basic rate taxpayer or own the property mortgage-free. On the same property with no mortgage, a basic rate taxpayer pays £6,400 in personal tax against £1,900 corporation tax plus an eventual £2,734 dividend tax (total £4,634), a saving of about £1,766 a year that barely covers the extra compliance cost.
Section 24 and why the company route exists
Since the 2020-21 tax year, BTL mortgage interest, broker fees and arrangement fees held in your own name are no longer deductible against rental profit. They convert to a 20% basic-rate tax reducer applied to your income tax bill. If you pay 40% tax, that halves the real relief on every pound of mortgage interest. If you pay 45% and carry very high mortgages, your effective tax rate on the rent can exceed 100%, so you hand HMRC more than the property actually earns.
Section 24 does not touch limited companies. A company deducts mortgage interest in full against its profit, the way it always has, and that single point has driven most of the incorporation activity since 2016. For the underlying mechanics, see our complete guide to Section 24 tax relief.
Corporation tax bands and how they bite
For 2025-26 and 2026-27:
- Small profits rate: 19% on profits up to £50,000
- Marginal relief: profits between £50,000 and £250,000, effective rate roughly 26.5% in the marginal band
- Main rate: 25% on profits above £250,000
The £50,000 and £250,000 thresholds are divided by the number of associated companies. Two associated companies (broadly companies under common control by you or your associates) halve those thresholds to £25,000 and £125,000. Three reduce them to £16,667 and £83,333. This is the trap if you set up one company per property (an SPV-per-asset structure) without thinking through the associated-companies position first.
In practice, if you run a single company and your rental profit is below £50,000 a year, you pay corporation tax at the flat 19% small profits rate. Once profit climbs above £50,000, the marginal rate kicks in. A 10-property portfolio making £80,000 net profit pays roughly £18,950 across the small profits rate and the marginal band, an effective rate around 23.7%.
Extracting money: dividends, salary, pension, and loans
Salary
A small director's salary up to the National Insurance secondary threshold (around £9,100 in 2025-26) sits inside your personal allowance with no income tax and no employee NIC, and the company deducts it as an expense. Salary above that threshold attracts employer NIC at 15% (the rate rose on 6 April 2025) plus employee NIC and income tax. For most property company directors, a salary at or just below the secondary threshold is the sweet spot.
Dividends
Dividends are paid from post-corporation-tax retained profits. The dividend allowance is £500 (reduced from £1,000 in 2024-25 and £2,000 in 2023-24). Dividend tax rates above the allowance:
- Basic rate: 10.75%
- Higher rate: 35.75%
- Additional rate: 39.35%
The 'double tax' on company money (corporation tax, then dividend tax) is the main reason the company route is less attractive if you plan to take out all the profit every year. As a higher rate shareholder, your combined effective rate on extracted income is roughly 40% to 45%, close to personal ownership once you strip out the Section 24 cost.
Pension contributions
The company can pay pension contributions on your behalf into a personal pension, SIPP, or SSAS, and deduct them against corporation tax. The annual allowance is £60,000 for 2025-26 (plus any unused carry-forward from the previous three tax years). This is often the most tax-efficient way to get money out: a 19% to 25% deduction inside the company, zero personal tax going in, and tax only when you draw it in retirement (often at lower rates).
Director's loan account
Money you put into the company (e.g., your initial deposit funds, top-ups to cover voids) sits as a Director's Loan Account credit. You can draw it back out tax-free until exhausted. Borrowing more than you have lent (an overdrawn DLA) triggers a Section 455 charge of 35.75% of the outstanding balance nine months and one day after year end, refundable when the loan is repaid. Loans above £10,000 also create a benefit-in-kind income tax charge unless interest at the official rate is paid by you to the company.
Transferring existing properties: Section 162 relief, SDLT, and mortgage refinancing
Moving personally-held properties into a new company is technically straightforward (a sale at market value to the company) but tax-expensive without the right reliefs.
CGT and Section 162 incorporation relief
The transfer is a disposal at market value. CGT applies on any gain over the original purchase price at 18% or 24%. Section 162 TCGA 1992 lets you defer the gain by rolling it into the new shares received, provided the business test is met. HMRC's published guidance (see the HMRC Capital Gains Manual) and the Ramsay v HMRC case (2013) suggest the test is met where the activity is more than passive investment, with the rule of thumb being five or more properties actively managed with significant personal time committed.
Where Section 162 applies, the entire latent gain rolls over with no immediate CGT. The deferred gain reduces the share base cost, so it crystallises when you eventually sell the company shares.
SDLT cost
Section 162 relief does NOT cover SDLT. Each property transfer is treated as a market-value acquisition by the company, with SDLT at full residential rates including the 5% additional dwellings surcharge (raised from 3% on 31 October 2024).
For a portfolio of five properties at £300,000 each, total SDLT cost on incorporation is roughly:
- Per property standard SDLT (post-1 April 2025 bands): £5,000
- Per property 5% surcharge: £15,000
- Total per property: £20,000
- Five-property total SDLT: £100,000
For most landlords this is the single biggest cost of incorporation, and the main reason many delay or avoid the transfer despite the recurring tax saving on the other side.
SDLT Schedule 15 partnership route
Where the existing structure is a true partnership (a property partnership registered with HMRC, with a formal partnership agreement, joint bank account, joint marketing, etc.) for at least one year before incorporation, SDLT Schedule 15 provides a connected-persons relief that can reduce or eliminate the SDLT charge on transfer to a partnership-owned company. The detail is technical and HMRC challenges aggressive use of this route. Take specialist advice before relying on it.
Mortgage refinancing
Your existing personal-name BTL mortgages have to be redeemed at the point of transfer, and the company then takes out new company-name BTL mortgages on each property. The lender pool is smaller (around 20 to 25 active company lenders), rates are typically 0.5% to 1.0% higher, and deposits start at 25% (often more). Your current lenders may refuse consent to transfer or hit you with early redemption charges. This is usually what sets the timing of the whole exercise.
The landlord incorporation toolkit
A working Excel model with live formulas, plus the plain-English written guide. Enter your email and we'll send you both.
| A | B | C | D | E | F | G | H | I | J | K | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | Your figures (edit the blue cells) | ||||||||||
| 2 | Property value | £300,000 | |||||||||
| 3 | Original cost | £200,000 | |||||||||
| 4 | Annual rent | £24,000 | |||||||||
| 5 | Mortgage interest | £9,000 | |||||||||
| 6 | Upfront to incorporate | Annual tax | |||||||||
| 7 | CGT on transfer | £21,018 | Stay personal | £6,600 | |||||||
| 8 | SDLT (with 5%) | £20,000 | Company route | £2,280 | |||||||
| 9 | Total upfront | £41,018 | Saving a year | £4,320 | |||||||
| 10 | Break-even in 9.5 years on these figures | ||||||||||
| 11 | |||||||||||
| 12 | |||||||||||
| 13 | |||||||||||
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ATED (Annual Tax on Enveloped Dwellings)
ATED applies where a company (or partnership with a corporate partner, or a collective investment scheme) owns a UK residential dwelling worth more than £500,000 on the relevant valuation date. The annual charge is banded:
| Property value band (2025-26) | Annual ATED charge (approximate) |
|---|---|
| £500,001 to £1m | £4,500 |
| £1m to £2m | £9,150 |
| £2m to £5m | £31,050 |
| £5m to £10m | £72,700 |
| £10m to £20m | £145,950 |
| Over £20m | £292,350 |
Most ordinary BTL companies are exempt under the rental business exemption (property let on a commercial basis to unconnected third parties). You still have to file the ATED return by 30 April each year and claim the exemption. Miss the filing and you face a £100 penalty rising with continued delay, even when no tax is due. Once one of your dwellings crosses the £500,000 mark, ATED interlocks with the 15% SDLT charge and with IHT under Schedule A1, the next revaluation date is 1 April 2027, and you have a real decision to make about whether to dis-envelope, claim the relief, or restructure. Our ATED guide for companies holding UK residential property works through that choice.
SPVs, group structures, and family share arrangements
Single trading company versus SPV-per-property
Until you grow past 10 to 15 properties, a single trading company usually does the job. An SPV-per-property structure (one company per asset, often held under a parent holding company) earns its keep once you want ring-fenced lender risk, easier sale of one property at a time via share transfer (which can save the buyer SDLT), or easier external investor or family participation property by property. The cost is more compliance (one CT600 per company) and tighter corporation tax bands once the associated-companies division kicks in.
Holding company structures
A holding company that owns the shares of multiple trading SPVs allows group relief between members (one SPV's losses offset another's profits in the same period), VAT grouping where relevant, and cleaner external finance at the holding level. Holding companies do not give automatic Inheritance Tax advantages for residential BTL businesses.
Alphabet shares and family income shifting
Issue separate share classes (A, B, C, D shares) to different family members with flexible dividend rights and the company can declare dividends differently across the classes each year. Adult children in lower tax bands can take dividends at the 10.75% basic rate instead of you taking them at 35.75% or 39.35%. This only works for genuinely adult shareholders (over 18) and has to be documented carefully: the settlements legislation (anti-avoidance rules) and recent HMRC challenges have caught plenty of poorly drafted schemes.
Inheritance tax: a common misunderstanding
On its own, incorporation does NOT reduce inheritance tax on a residential BTL business. Business Relief at 100% needs the underlying business to be a trade, not an investment, and a residential letting business counts as investment activity for IHT no matter how actively you manage it. So your shares in the company are valued at market value in your estate and face IHT at 40% above the nil-rate band.
Real IHT planning on a property portfolio runs through trusts (a gift into a discretionary trust as a Potentially Exempt Transfer, where you need to survive seven years), life assurance written in trust, or gifting company shares during your lifetime. Our guide to inheritance tax on rental property covers the wider mechanics.
Ongoing compliance and what it actually costs
| Compliance item | Deadline | Typical annual cost (small property company) |
|---|---|---|
| Statutory accounts to Companies House | 9 months after year end | Included in accountancy fee |
| Corporation tax return (CT600) to HMRC | 12 months after year end (payment within 9 months and 1 day) | Included in accountancy fee |
| Confirmation statement to Companies House | Annually | £34 filing fee plus £50 to £100 if outsourced |
| ATED return (if any property over £500k) | 30 April annually | £100 to £300 |
| Director's payroll (if used) | Monthly RTI submissions | £200 to £500 a year |
| Accountancy and bookkeeping (combined) | Ongoing | £1,200 to £3,500 |
| Business bank account | Ongoing | £0 to £30 a month |
| Registered office (if outsourced) | Ongoing | £0 to £150 a year |
Realistically, a small property company runs at £1,500 to £3,000 a year in compliance. A 10-property company with active bookkeeping typically pays £3,000 to £5,000 a year.
MTD does not apply to property companies (yet)
Making Tax Digital for Income Tax Self Assessment (live since 6 April 2026) applies only to sole-trader and unincorporated landlords. Limited company property income goes through the annual CT600, which sits outside MTD for ITSA. MTD for Corporation Tax has been floated, but there is no firm start date and the timeline is widely expected to slip to 2030 or later. So if you hold property through a company, you do not need MTD-compatible software for the company's CT600 obligations.
You may still want cloud bookkeeping (Xero, FreeAgent, QuickBooks) for operational reasons, but it is not a regulatory requirement.
Common mistakes to avoid
- Incorporating without modelling the after-tax position over 5 to 10 years. The headline corporation tax saving evaporates fast under heavy dividend extraction. Always model the whole flow.
- Forgetting Section 162 needs a business test. A two-property landlord can rarely claim Section 162 relief. The CGT on transfer can wipe out years of future tax saving.
- Underestimating SDLT cost on transfer. The 5% additional dwellings surcharge applies in full to incorporation transfers. Plan for it.
- Mixing personal and company finances. Pay every property expense from the company account. Reimburse personal cards through the Director's Loan Account, never from the company directly.
- Drawing all profit as dividends and paying full higher rate dividend tax. Pension contributions, retained profit for portfolio growth, and director's salary up to the NI threshold all reduce the personal tax drag.
- Setting up alphabet shares badly. HMRC has won several settlements legislation cases on poorly drafted family share schemes. Use a tax-qualified adviser.
- Ignoring ATED. The exemption is automatic only if you file the return claiming it. £100 penalties for missed filings on a perfectly exempt property are common.
- Forgetting Business Relief does not apply. IHT remains a real exposure on a property company. Plan separately for it.
Practical decision checklist
- Calculate your personal marginal income tax rate including all sources.
- Identify total mortgage interest across your BTL portfolio.
- Estimate latent capital gain in each existing property.
- Confirm whether your activity meets the Section 162 business test (five or more properties actively managed is a reasonable proxy).
- Get mortgage broker advice on company-name BTL availability for your specific properties and LTVs.
- Model 10-year after-tax cash flow on both personal and company routes with your actual numbers.
- Decide on extraction strategy (heavy dividends, pension funding, profit retention) before incorporating, not after.
- Engage a specialist accountant to execute the transfer if proceeding.
Where to go next
To take this further, read our limited company versus personal ownership comparison and our guide to incorporation timing, along with our detailed guides to Section 24, capital gains tax on property, and inheritance tax on rental property.
If you are weighing up incorporation against staying personal and want a straight answer for your own numbers, send us your last self assessment and a summary of your current portfolio using the form below. The first call is free, and we will tell you honestly whether incorporation is the right move for you.