6 min read
More landlords are choosing to buy, sell and invest in property through a limited company rather than in their own name. It can bring tax advantages, but it isn't the right choice for everyone. Here's what's involved, what it costs, and reasons for and against setting one up.
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When you buy property through a limited company, it’s owned by the company, rather than your personal name. You own shares in the company instead, and any rental profit or gain on sale belongs to the company rather than to you directly.
This structure is most commonly used by landlords buying property to let out, rather than by people buying a home to live in.
In this article:
You can buy residential property through a limited company – most commonly buy-to-let properties. It's not common or advised to use a limited company to buy your own home. This is largely due to high tax penalties and restrictive mortgage options.
Limited companies can get buy-to-let mortgages, sometimes called SPV mortgages. Far fewer lenders offer these compared with personal buy-to-let deals, and rates and fees are often slightly higher.
Limited companies can also buy commercial property for trading operations - but this article focuses on residential properties.
Tax efficiency - you pay Corporation Tax instead of Income Tax on rental profit, which can work out cheaper for higher rate taxpayers
Full mortgage interest relief - you can charge it as a business expense to reduce tax on your profits
Easier portfolio growth - profits can be retained and reinvested in the company at the lower Corporation Tax rate
More flexibility for inheritance planning - as shares in the company can be gradually transferred to family members
Less favourable mortgage options - there are fewer mortgage lenders and higher rates compared to personal buy-to-let mortgages
Extra admin - including annual accounts, Companies House filings, and accountancy fees
Tax on extracting profit - as taking money out of the company (via dividends or salary) is taxed again on top of Corporation Tax
No personal Capital Gains Tax allowance when the company sells a property, since companies pay Corporation Tax on the gain instead
This table compares costs for a buy-to-let property, since this is the most common way landlords use a limited company. Costs will vary based on your circumstances, so use this as a general guide rather than exact figures.
Private individual | Limited company | |
|---|---|---|
Stamp duty (SDLT) | No surcharge on first home. 5% surcharge if buying an additional property | Always 5% surcharge, even on a first purchase. 17% flat rate above £500k (relief often available) |
Tax on rental profit | Income Tax: 20% / 40% / 45% (0% on first £12,570) | Corporation tax: |
Mortgage interest relief | Capped at a 20% tax credit | Fully deductible |
Capital Gain Tax on sale | 18% / 24% | No - taxed under corporation tax (19-35%) |
Capital Gains Tax Allowance | Yes - £3,000 | No |
Tax on extracting profit | Not applicable | Yes - dividend tax (9% / 34-36%) plus corporation tax |
Annual Tax on Enveloped Dwellings (ATED) | Not applicable | Applies over £500k, usually reduced to nil with relief |
Accountancy / filing fees | Not applicable | Ongoing annual cost |
Inheritance tax relief | Yes - business relief | No - beneficiaries pay up to 40% on properties above £325,000 threshold |
Average loan to value (LTV) | 74.4% | 74.4% |
Set up the company. Most landlords set up a Special Purpose Vehicle (SPV), a limited company created specifically to hold property, rather than using an existing trading company. This keeps property separate from other business activities and is usually easier for mortgage lenders to assess. It can be set up online through Companies House.
Open a business bank account. The company needs its own account to receive rental income and pay expenses.
Arrange a mortgage. You'll need a limited company buy-to-let mortgage, as standard residential mortgages aren't available to companies. Fewer lenders offer buy-to-let mortgages to private companies, and rates can be higher than personal deals.
Complete the purchase. Your conveyancer will handle the legal process as normal, though the buyer named on all paperwork will be the company, not you.
It's worth using a conveyancer that is experienced in company purchases, since extra checks (such as verifying company details and signatories) are involved.
Purchasing a property through a limited company can involve additional legal considerations. Our experienced conveyancing solicitors can help guide you through the process and provide a tailored quote for your purchase.
There's no single right answer. It depends on your income, how many properties you hold, and how long you plan to keep them. As a general rule, buying as a limited company tends to work out better if you're a higher rate taxpayer and plan to hold the property as a long-term investment, since the Corporation Tax and reinvestment advantages have more time to outweigh the extra admin and cost of extracting profit.
That said, the numbers can shift significantly based on your personal circumstances, so it's worth getting advice from an accountant who specialises in property before deciding.
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