The Shift to Limited Companies – What’s Going On?
If you’re a landlord or thinking of becoming one, you’ve probably heard that many property investors now buy through a limited company rather than in their personal name. But why the shift?
The Growing Trend Among Landlords
The answer lies in changes to tax laws, rising interest rates, and the increasing need for strategic financial planning.
Industry Stats & Trends:
• 50% of new buy-to-let purchases in 2023 were made through limited companies, up from 39% in 2020.(Hampton’s Lettings)
• There are now over 300,000 buy-to-let companies in the UK – a record high. (Companies House Data)
• Limited company landlords now hold around 615,000 properties in England & Wales. (London School of Economics)
So, what’s driving this shift?
The Key Benefits of Buying Property Through a Limited Company
1. Full Mortgage Interest Tax Relief
One of the biggest reasons landlords are making the switch is tax efficiency.
In 2017, the UK government phased out Section 24, which previously allowed individual landlords to deduct 100% of mortgage interest from rental income. Now, private landlords can only claim a 20% tax credit, making it far less tax-efficient—especially for higher-rate taxpayers.
Limited companies, however, can still deduct mortgage interest as a business expense, reducing their taxable profits significantly.
2. Lower Corporation Tax vs. Income Tax
Landlords who own properties personally pay income tax on rental profits, which can be as high as 45% for higher-rate taxpayers. In contrast, companies pay corporation tax, which is currently 25% (or 19% for profits under ÂŁ50,000).
đź“Ś Example:
• A landlord making £40,000 in rental profits pays 40% income tax personally = £16,000 tax bill.
• A limited company making £40,000 in rental profits pays 25% corporation tax = £10,000 tax bill.
That’s a £6,000 saving simply by using the right structure!
3. Easier Inheritance Planning
Passing down property to family members can be complicated and costly due to inheritance tax (IHT). However, when properties are held in a limited company, ownership can be transferred via shares, allowing for more tax-efficient estate planning.
• Gifting shares gradually can help reduce inheritance tax liability.
• Family members can become shareholders without immediate property transfers.
4. Retained Profits & Reinvestment
Unlike personally owned properties, limited companies allow landlords to retain profits inside the business without triggering personal income tax. This is perfect for landlords planning to reinvest in more properties without taking the tax hit upfront.
đź’ˇ Thinking about restructuring your property investments? We can help you decide if a limited company is the right move. Speak to us today for expert advice.
Potential Downsides & Considerations
1. Higher Mortgage Costs
Many lenders charge higher interest rates for buy-to-let mortgages taken out by limited companies. In some cases, rates can be 1-2% higher than personal mortgages. Additionally, fewer lenders offer corporate buy-to-let loans, limiting options.
2. Extra Administrative Work
Running a limited company means more paperwork:
âś… Annual accounts filing with Companies House
âś… Corporation tax returns to HMRC
âś… Separate business bank account required
While this adds admin, it can be easily managed with the right accounting support.
3. Dividend Tax When Taking Money Out
If you take profits from a limited company, you pay dividend tax (8.75% basic rate, 33.75% higher rate). While this is still lower than personal income tax rates, landlords should plan withdrawals carefully.
💡 If you’re unsure about the tax implications, we can guide you through the pros and cons. Get in touch today to make the best financial decision.
Should You Buy Through a Limited Company?
This structure isn’t right for everyone, but it can be highly beneficial for landlords who:
âś” Own or plan to own multiple properties
âś” Want to reduce their tax bill and retain profits for reinvestment
âś” Are higher-rate taxpayers looking for tax-efficient solutions
âś” Want to plan for inheritance in a tax-efficient way
However, if you only own one or two properties, the extra admin costs and mortgage restrictions may not be worth it.
Conclusion
With increasing mortgage costs and changing tax rules, landlords need to think strategically about how they structure their investments. Limited companies offer tax relief, lower corporate tax, and better succession planning, but they also come with administrative complexities. The key is understanding the long-term financial impact before making a decision.
🚀 Need personalised advice? Speak to us today for expert accounting guidance tailored to your property portfolio.
References:
1. Hamptons Lettings, “The Rise of Limited Company Landlords,” 2024. Available at: www.hamptons.co.uk
2. Companies House Data, “Buy-to-let Company Registrations Hit Record High,” 2024. Available at: www.gov.uk/companieshouse
3. London School of Economics, “Landlord Strategies in the UK Rental Market,” 2023. Available at: www.lse.ac.uk
4. HMRC, “Corporation Tax Rates and Mortgage Interest Relief,” 2024. Available at: www.gov.uk
