The question of whether to hold buy-to-let properties in a limited company or personally has become one of the most hotly debated topics in UK property taxation since Section 24 removed mortgage interest relief for individual landlords. The answer depends heavily on your specific circumstances — there is no universally correct answer — but the comparison has shifted significantly in favour of the limited company structure for many landlords over the past decade.
This guide works through the key factors: Section 24, Corporation Tax rates, mortgage costs, CGT on exit, inheritance, and ongoing admin, giving you an honest comparison for 2026.
The Section 24 Problem for Individual Landlords
Before April 2017, all mortgage interest was fully deductible from rental income. This made personally held property highly tax efficient for higher rate taxpayers.
Section 24, fully phased in from April 2020, replaced this with a 20% basic rate tax credit on finance costs. The effect is dramatic for higher rate taxpayers:
| Old system (pre-2017) | Current (2026/27) | |
|---|---|---|
| Annual rent | £18,000 | £18,000 |
| Mortgage interest | £9,000 deductible | Not deductible |
| Other expenses | £2,000 | £2,000 |
| Taxable profit | £7,000 | £16,000 |
| Tax at 40% | £2,800 | £6,400 |
| Less 20% finance credit | N/A | -£1,800 |
| Net tax liability | £2,800 | £4,600 |
The tax bill has nearly doubled, despite the actual cash flow from the property being unchanged. This is the core driver pushing higher rate taxpayer landlords toward limited company structures.
The Limited Company Advantage
A property limited company (often called a Special Purpose Vehicle or SPV) pays Corporation Tax on its profits. Unlike the personal position, mortgage interest is fully deductible as a business expense in a company.
Using the same figures above:
- Rental income: £18,000
- Mortgage interest (fully deductible): £9,000
- Other expenses: £2,000
- Company profit: £7,000
- Corporation Tax at 19%: £1,330
The company tax bill is £1,330 versus the personal tax bill of £4,600 — a saving of £3,270 per year on this single property for a higher rate taxpayer.
However, this saving is only realised if the profit is retained in the company. If you extract all the profit as a dividend, dividend tax is added on top, potentially narrowing or eliminating the advantage.
The limited company structure is most beneficial when you:
- Are a higher or additional rate taxpayer
- Can retain profits in the company rather than extracting them immediately
- Are building a portfolio over time using reinvested retained profits
- Have a long investment horizon
The Problems With Incorporating Existing Properties
If you already own properties personally, transferring them to a company is not straightforward:
Stamp Duty Land Tax (SDLT): The transfer is treated as a sale to the company at market value, triggering SDLT on the current value of each property. For a portfolio worth £800,000, SDLT could be £30,000 or more.
Capital Gains Tax: The transfer is also a disposal at market value for CGT purposes. If the properties have increased in value since purchase, CGT is due on the gain.
Incorporation Relief: There is a CGT relief available on incorporation if you are running a genuine property business rather than passive investment, but qualifying is complex and the SDLT charge generally still applies.
For most existing portfolio landlords, the cost of transferring to a company exceeds the tax savings for several years. The structure is most efficient when properties are purchased into the company from the outset.
Mortgage Rates — The Company Disadvantage
Buy-to-let mortgages for limited companies consistently carry higher interest rates than personal mortgages — typically 0.5% to 1.5% higher. On a £250,000 mortgage, that is £1,250 to £3,750 per year in additional interest costs.
The mortgage rate differential must be included in any comparison. For some landlords with relatively low mortgage balances or in portfolios where the rental yield is high, the higher mortgage rate erodes much of the CT saving.
CGT and Exit Planning
Selling a property personally: CGT at 18% or 24% (residential property), with the annual exempt amount (£3,000) available.
Selling a property held in a company: The company pays Corporation Tax on the gain at 19%. You then need to extract the sale proceeds as dividends (taxed at up to 33.75%) or wind up the company (where Business Asset Disposal Relief at 10% may apply if conditions are met). The total tax on exit is often higher through a company than personally, particularly for smaller portfolios.
The limited company advantage accrues during the holding period. On exit, the company structure is typically less efficient unless the portfolio is large enough that Business Asset Disposal Relief on winding up is valuable.
Inheritance and Estate Planning
Company shares in a property SPV may qualify for Business Property Relief (BPR) from Inheritance Tax, potentially reducing the IHT on the value of the portfolio on death. However, HMRC has challenged many such claims and BPR does not automatically apply to property investment companies. Specific legal and tax advice is essential before relying on this.
Personally held investment properties do not qualify for BPR and are fully within the estate for IHT purposes at 40% above the nil rate bands.
Client B was a Harrow teacher with a salary of £48,000 and two buy-to-let properties generating £26,000 in rent per year with £14,000 in mortgage interest. Under the personal regime, her adjusted net income was over £50,000 — pulling her into the higher rate band and triggering the High Income Child Benefit Charge on top of the Section 24 impact.
We modelled both scenarios. Purchasing her next property through a limited company and retaining profits there would reduce her personal income, restore her Child Benefit, and allow the portfolio to grow using company-retained profits at the 19% CT rate rather than the 40% personal rate. The total annual saving from this approach — including restored Child Benefit — was over £5,200 per year.
Frequently Asked Questions
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