Limited Company vs Personal Buy-to-Let: Tax Comparison
The biggest structural decision in a landlord's portfolio. Here is the full tax comparison — and when each structure wins.
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# Limited Company vs Personal Buy-to-Let: Tax Comparison
The choice between personal and limited company ownership is the biggest structural decision in any landlord''s portfolio. The answer depends on tax band, leverage, time horizon, and exit plans.
Personal ownership
Pros
- No corporation tax layer; one round of tax.
- Lower SDLT surcharge threshold (£40k minimum; surcharge does not apply to first home).
- Annual CGT allowance available on sale (£3,000 for 2025/26).
- Simpler accounts and self-assessment.
- No restriction on equity withdrawal.
Cons
- Section 24: mortgage interest only gets 20% credit.
- Higher-rate income tax (40%/45%) on profits.
- Inheritance tax exposure on full property value.
Tax rates (England)
- Personal allowance: £12,570.
- Basic rate 20%: £12,571–£50,270.
- Higher rate 40%: £50,271–£125,140.
- Additional rate 45%: above £125,140.
- CGT on residential: 18% (basic), 24% (higher) — from April 2024.
Limited company (SPV) ownership
Pros
- Mortgage interest fully deducted against profits.
- Corporation tax 19% (£0–£50k profit) to 25% (£250k+); marginal relief between.
- Easier intergenerational planning (gift shares, not properties).
- Retain profits to reinvest without dividend tax.
- Separation of legal liability.
Cons
- 5% SDLT surcharge from £1 (no minimum).
- Higher mortgage rates and arrangement fees (50–100bps premium).
- Dividend tax on extraction: 8.75/33.75/39.35% (after £500 allowance).
- Corporation tax PLUS dividend tax on extracted profits.
- Setup and annual filing costs.
- One-off SDLT and CGT cost to transfer existing properties to a company.
Tax rates
- Corporation tax: 19% on small profits, 25% on >£250k, marginal between.
- Dividend allowance: £500 (2025/26).
- Dividend tax: 8.75% basic, 33.75% higher, 39.35% additional.
Side-by-side example
Property: £200,000 purchase, £150,000 mortgage at 5%, £15,000 rent, £4,000 expenses.
Personal — higher-rate taxpayer
- Mortgage interest: £7,500.
- "Profit" for tax (ignore interest): £15,000 – £4,000 = £11,000.
- Tax at 40%: £4,400.
- Less Section 24 credit: 20% × £7,500 = £1,500.
- Net tax: £2,900.
- Cash profit: £15,000 – £4,000 – £7,500 = £3,500.
- After-tax cash: £600 (17% effective).
Limited company
- Profit: £15,000 – £4,000 – £7,500 = £3,500.
- Corporation tax 19%: £665.
- Retained: £2,835.
- If extracted as dividend (higher-rate shareholder): £2,835 × 33.75% = £957.
- Total tax: £1,622.
- After-tax cash if extracted: £1,878 (54% effective).
In this example the company saves £1,278 per year per property. Over 10 properties and 10 years, the difference funds the strategy itself.
When personal wins
- You are a basic-rate taxpayer with no plans to enter higher rate.
- You own 1–2 properties with low leverage.
- You plan to sell within 5 years (capital extraction simpler).
- You want the £3,000 annual CGT allowance.
- You need the rental income directly (no profit retention).
When the company wins
- You are a higher-rate taxpayer.
- You have leveraged properties (interest cost is meaningful).
- You are building a portfolio of 3+ properties.
- You can leave profits inside the company for reinvestment.
- You want to bring family into ownership via shares.
- You are planning long-term hold.
SDLT comparison
For a £250k property:
| Structure | Standard SDLT | Surcharge (5%) | Total |
|---|---|---|---|
| Personal — first property | £2,500 | £0 | £2,500 |
| Personal — additional | £2,500 | £12,500 | £15,000 |
| Company | £2,500 | £12,500 | £15,000 |
The surcharge is unavoidable for both individual additional properties and any company purchase.
CGT vs Corporation tax on sale
Personal sale at £100k gain:
- £3,000 annual allowance.
- £97,000 taxable.
- 24% higher-rate: £23,280.
Company sale at £100k gain:
- No annual allowance.
- 19–25% corporation tax: £19,000–£25,000.
- Plus dividend tax to extract proceeds.
For a single sale, personal is often cleaner. For multiple sales over time with reinvestment, the company''s ability to retain proceeds without immediate dividend tax can win.
Transferring existing personal property to a company
Beware: this is a sale and purchase for tax purposes.
- Personal: CGT on the gain since you bought it.
- Company: full SDLT on market value (with surcharge).
- Often £30k+ on a single property.
Incorporation Relief may defer CGT in narrow circumstances (genuine partnership with substantial business). Specialist advice essential.
Refinancing inside a company
- Mortgage rates 50–100bps higher than personal BTL.
- Fewer lenders willing.
- Application requires personal guarantees from directors.
- Multiple-property SPVs need debenture / floating charge.
Practical playbook
- Calculate both structures for your specific tax band and leverage.
- Long-term plan matters more than year-1 tax — incorporation costs amortise.
- Existing portfolio: do not transfer without specialist advice; SDLT and CGT can be brutal.
- New purchases: model both options every time.
- Hybrid model: keep older low-leverage properties personal; buy new high-leverage properties through SPV.
Bottom line
Personal ownership is simpler and tax-efficient for basic-rate landlords with low leverage. Limited companies win clearly for higher-rate landlords with leveraged portfolios who can retain profit. The crossover is roughly at 3+ properties for a higher-rate taxpayer, but model your own numbers — the difference is rarely small.
Frequently asked questions
Is a limited company always better for landlords?+
No. Basic-rate landlords with 1–2 unleveraged properties often pay more tax via a company because of the dividend layer.
What is an SPV?+
A Special Purpose Vehicle — a limited company set up solely to hold property. Mortgage lenders prefer SPV structures over trading companies.
Can I move existing properties to a company tax-free?+
Usually not — sale to a company triggers CGT and SDLT at market value. Incorporation Relief may defer CGT in narrow circumstances.
What is the corporation tax rate?+
19% on profits up to £50,000, 25% on profits over £250,000, with marginal relief between.
How much extra is a BTL mortgage in a company?+
Typically 50–100 basis points higher rate, plus higher arrangement fees and a smaller lender pool.
Do companies pay the SDLT surcharge?+
Yes — 5% on every purchase from £1, with no minimum threshold.
Can I pay myself a salary from the company?+
Yes — within national insurance limits. Most landlords take a small salary up to the secondary NI threshold plus dividends.
What is the dividend allowance?+
£500 (2025/26). Dividends above are taxed at 8.75/33.75/39.35% depending on band.
Are companies better for inheritance tax?+
Often yes — shares can be gifted into trusts or transferred over time; properties cannot be split as easily.
How much does running a company cost?+
Confirmation statement £34, annual accounts filing ~£200–£500 to an accountant, plus self-assessment for directors.
Can I hold property in a partnership?+
Yes — partnerships have specific advantages including potential Incorporation Relief and flexible profit allocation. Get specialist advice.
At what point is incorporation worth it?+
Rough rule: higher-rate taxpayer with 3+ leveraged properties, planning long-term hold. Model your specific numbers.
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