How to Set Up a Limited Company for Property

# How to Set Up a Limited Company for Property

Since the 2017 Section 24 changes, limited company buy-to-let has gone from a niche structure to the default for new portfolio landlords. But it is not automatically the right answer — and transferring existing properties is the most expensive mistake in property tax. This guide walks through when it works, when it does not, and how to set one up correctly.

Why landlords use a limited company

The headline reason is Section 24 of the Finance (No. 2) Act 2015. Since April 2020, individual landlords cannot deduct mortgage interest from rental income. They get a 20% tax credit instead.

Worked example — higher-rate taxpayer in personal name:

• Rent £14,400
• Costs £3,000
• Mortgage interest £8,000
• Taxable profit (HMRC view): £11,400
• Income tax at 40%: £4,560
• Minus 20% credit on £8,000 interest: £1,600
• Tax payable: £2,960
• Cash profit (rent - costs - interest - tax): £14,400 - £3,000 - £8,000 - £2,960 = £440

Same property in a limited company:

• Rent £14,400
• Costs £3,000
• Mortgage interest £8,000 (fully deductible)
• Taxable profit: £3,400
• Corporation tax at 19%: £646
• Cash profit retained in company: £2,754

The company keeps over 6x the after-tax cash.

When the SPV WINS

• You are a higher- or additional-rate taxpayer.
• You plan to reinvest profits to grow a portfolio (no extraction needed).
• You are buying new properties (no transfer trap).
• You want inheritance planning flexibility (gift shares progressively).
• You hold 4+ properties (portfolio mortgage products available).
• Long-term hold horizon (10+ years).

When the SPV LOSES

• You are a basic-rate taxpayer with no plan to move into higher.
• You only own 1 or 2 properties and need the income personally.
• You want to transfer existing personal properties — SDLT and CGT usually wipe out savings.
• Your spouse can absorb income tax-efficiently in personal name.
• You are 5 years from retirement (extraction tax planning matters more).
• The property has significant capital growth already accrued in personal name (huge CGT exit).

The transfer trap

If you already own a buy-to-let personally and move it into a company, HMRC treats this as:

1. A sale by you at market value — CGT at 18%/24% on gain since purchase.
2. A purchase by the company — SDLT including 3% surcharge on market value.

Example: £200k property bought for £130k 10 years ago:

• CGT on £70k gain: ~£12,000.
• SDLT for company purchase: £7,500.
• Mortgage arrangement: £3,000.
• Legal fees: £2,500.
• Total transfer cost: ~£25,000 per property.

You would need 8–10 years of corporation tax savings to break even. Most landlords are better off leaving existing properties personal and using the SPV only for new acquisitions.

Exception: Incorporation Relief (s.162 TCGA 1992) can defer CGT if you incorporate an active property business (usually 4+ properties run as a business with significant personal time). Get specialist advice — HMRC contests these regularly.

How to set up an SPV — step by step

Step 1: Choose a name

Avoid names that imply estate agency (regulated) or financial advice. Smith Property Holdings Ltd or [Initials] Investments Ltd works. Check availability on Companies House.

Step 2: Pick the right SIC codes

Lenders want a pure property SPV. Use:

• 68100 — Buying and selling of own real estate.
• 68209 — Other letting and operating of own or leased real estate.
• 68320 — Management of real estate on a fee or contract basis.

Add all three. Avoid trading codes (retail, consulting) — most BTL lenders refuse mixed-use companies.

Step 3: Register at Companies House

• Cost: £50 online, £71 by post.
• Time: 24 hours typically.
• Documents: Memorandum, Articles of Association (use standard model articles).
• Directors: at least 1.
• Shareholders: at least 1 (can be same person).
• Registered office: real address (your accountant can provide).
• PSC register: list controlling persons.

Step 4: Open a business bank account

• High street banks (HSBC, Lloyds, Barclays) take 2–6 weeks.
• Challenger banks (Tide, Starling, Monzo Business) take 24–72 hours.
• Required: company number, director ID, proof of address, expected turnover.

Step 5: Register with HMRC

• Corporation tax registration is automatic once Companies House feeds HMRC.
• VAT registration only if turnover exceeds £85k (rare for residential BTL).
• PAYE only if you pay yourself a salary.

Step 6: Get a BTL mortgage

• Search whole-of-market via a broker — only ~40 lenders offer SPV BTL.
• Rates typically 0.3–0.7% above personal BTL.
• Personal guarantees required (lenders pierce the corporate veil).
• 75% max LTV most common; 80% available with some lenders.

Step 7: Buy the property

• Solicitor draws contract with the company as buyer.
• SDLT submitted in company name (with 3% surcharge for additional properties).
• Title registered to the company.
• Insurance in company name.

Step 8: Bookkeeping

• Use Xero, FreeAgent or QuickBooks — your accountant will plug in.
• Monthly: reconcile rent received, mortgage interest, repairs, insurance.
• Annually: file accounts at Companies House + CT600 at HMRC.

Ongoing costs

For a 1-property SPV, expect £900–£1,500 total annual admin. For a 5-property SPV, £1,500–£2,500.

Extracting money from the SPV

1. Salary — up to £12,570/year tax-free (personal allowance), employer NI above £9,100.
2. Dividends — taxed at 8.75% / 33.75% / 39.35% after £500 allowance.
3. Director loan — interest-free up to £10,000 short-term; HMRC interest above.

Most landlords reinvest until they need cash, then draw modest dividends.

Inheritance planning

SPV shares can be gifted progressively (7-year IHT rule), held as growth or frozen-value classes, or combined with a family investment company. Personal property cannot be split this cleanly.

Common mistakes

• Setting up a trading company first then adding property — many lenders refuse.
• Wrong SIC codes — refusal at mortgage application.
• Buying personal then immediately incorporating — full SDLT + CGT bill.
• Mixing personal and company money — pierces the veil and exposes personal assets.
• Forgetting to file accounts — automatic strike-off and lost properties.