Buy to let in a limited company: pros and cons

Why it matters

The right structure depends on your marginal tax rate, whether you need the income now, how long you will hold and how many properties you plan to own. There is no universally correct answer.

Legal requirements

• Company profits are subject to corporation tax rather than income tax.
• Mortgage interest is fully deductible against company rental profit.
• Extracting profit as dividends or salary creates a further personal tax charge.
• Companies file annual accounts and a corporation tax return in addition to any personal return.

Common mistakes

• Transferring existing personal properties into a company without pricing stamp duty and capital gains.
• Assuming lender rates and fees are comparable with personal buy to let.
• Ignoring the cost of accountancy and filing for a small portfolio.
• Forgetting that directors loans and personal guarantees carry their own rules.

Practical guidance

• Model both structures over your intended holding period rather than for a single year.
• Weigh whether profits will be retained and reinvested or drawn as income.
• Get a broker to quote real company mortgage terms before committing.
• Take advice before any incorporation of an existing portfolio.

Where a company usually wins

Higher and additional rate taxpayers who are building a portfolio, reinvesting profits and using mortgage finance heavily tend to benefit. Full interest deductibility plus a lower rate on retained profit compounds over time. Companies also allow flexible share structures for family planning and can make succession simpler. If the plan is to buy several properties over a decade and leave the money in, the arithmetic often favours the company.

Where personal ownership still wins

Basic rate taxpayers, unmortgaged properties, single property owners and anyone who needs the rent as spending money usually do better personally. Personal ownership also gives access to the capital gains annual exemption on sale and avoids the double layer of tax on extraction. Transferring an existing property into a company is a disposal for capital gains and an acquisition for stamp duty, so the entry cost frequently outweighs the annual saving.