An individual landlord pays income tax on net rental profits at rates of up to 45% – and this will increase to 47% from April 2028. Mortgage interest is no longer directly deductible and instead attracts relief at only 20%, which can significantly increase the effective tax rate for higher and additional rate taxpayers.

By contrast, a company pays corporation tax on its profits at between 19% and 25%. Finance costs are normally deductible, although relief can be restricted for larger, highly geared companies or groups. Where profits are retained within the company to reinvest rather than being drawn personally, this can result in a significantly lower overall tax burden compared to personal ownership, albeit the profits are not in the individuals’ hands at that point.

As a result, company ownership tends to be most attractive for landlords who do not need to extract all the rental income each year and are focused on long term portfolio growth.

Retaining profits in a company can also have the benefit for individuals with higher incomes of not impacting the potential loss of their personal allowance by moving their income through the £100,000 threshold.

Other advantages of holding buy to let investments through a company structure

A company provides limited liability, which can offer protection against some commercial risks, including tenant claims and insolvency of the letting business. However, the protection against lenders may be limited if a lender requires a personal guarantee, and insurance can be obtained to cover the operational and legal risks if held personally.

Companies can also offer greater flexibility for succession and estate planning. Shares in a company can be transferred, potentially allowing landlords to bring family members into the structure or plan for future ownership changes in a more controlled way than transferring property directly.

Where a property is held in a company, the share classes of the company can give flexibility in tax planning within a family, which is not possible if the property is held by an individual. This is particularly relevant when considering the significant Stamp Duty Land Tax liabilities that can arise when transferring properties.

Companies can also make it easier to segregate property activities from other personal income and investments, which some landlords value from a control and risk management standpoint.

Drawbacks of using a limited company structure

The tax position on exit should always be considered. When a property is sold, any gain will be taxable. A company would be taxable on any gain at rates between 19-25% and further tax applies when the profits are extracted. Individuals pay capital gains tax (CGT) at rates of 18% or 24% and potentially have a small CGT allowance to utilise.

The inheritance tax implications of the structuring should also be a consideration.

Borrowing through a company often attracts higher interest rates and fees and therefore this should be factored into any structuring considerations.

There are additional costs and administrative obligations in maintaining a limited company, including annual accounts, corporation tax returns and Companies House filings. Professional fees are therefore typically higher than for personal ownership and these costs should not be underestimated, particularly for smaller portfolios.

Stamp Duty Land Tax (SDLT) is also an important factor, and the rules can become complicated. For buy-to-let purchases, SDLT is generally similar for companies and individuals who already own another property, as both pay the higher rates surcharge.

Where residential property is held in a company, the Annual Tax on Enveloped Dwellings (ATED) regime must also be considered. While most genuine buy-to-let businesses will qualify for relief from the charge, there are still compliance requirements, including annual ATED returns.

As a final point, extracting value from a company in the future, whether through dividends, salaries or liquidation, requires careful planning to avoid unexpected taxes.

The impact of the forthcoming changes to the rates of tax on dividends and property income on the decision of whether or not to use a company structure

The dividend tax rates are set to increase from April 2026 by 2% for those who pay tax at the basic rate (to 10.75%) and to 35.75% for those who pay tax at the higher rate. The dividend allowance remains at a low level (£500). This means that profits extracted from a property company as dividends will face a higher personal tax charge, in addition to the corporation tax already paid by the company.

The Budget also confirmed an increase in the rates of tax applying to property income of 2% on each income tax band from April 2027, alongside the continued freeze in income tax thresholds. For landlords who own property personally, this increases the tax cost of rental profits directly and pushes more income into higher marginal bands over time.

Higher dividend tax rates reduce the attractiveness of extracting profits from a company, while higher property income tax rates increase the tax cost of personal ownership. The result is that the company structure can still make sense for landlords, particularly those who are able to keep profits within the company or extract them gradually, or when other income falls.

The decision of whether to utilise a company should always be based on the overall tax position and the longer-term objectives, rather than a single rate change.

In Summary

A company structure is not a universal solution and works best where it fits with the investor’s longer-term objectives rather than purely short-term tax savings.

Would you like to know more?

If you have any questions about the above, please get it touch with your usual Blick Rothenberg contact or Mark using the form below.