Buy to let limited company – should you set one up?

As mortgage interest relief was finally phased out in 2020 and replaced by a tax credit, based on 20% of mortgage interest payments, buy-to-let landlords are increasingly considering whether to set up a limited company to hold their investment properties.

Holding them in a limited company will mean that they are assessed for tax differently, including being able to claim full mortgage interest tax relief. It is a complicated decision that requires detailed analysis to assess the most efficient way of holding property. 

Ultimately, the decision will be guided by: 

  • How long you intend to own the property
  • The likely amount of capital gains generated, if the property is going to be disposed of at a future date
  • Your own income tax position
  • Whether you rely on the income generated or wish to roll up the income for further investment

If you already have buy-to-let properties held personally, there is further consideration as they will need to be transferred from your personal ownership into a limited company. This can trigger additional Capital Gains Tax, Stamp Duty Land Tax, legal fees and re-mortgage fees. Reliefs may be available but if not and unless you intend to hold these properties as a long-term investment, these costs are likely to make the transfer cost prohibited. Here are your options for owning buy to let property.


Personal Ownership 

With the changes to Mortgage Interest Relief that took place in 2020, the decision to hold a buy-to-let property personally has become much more complicated. This change, resulted in a tax credit based on 20% of your mortgage interest payments, is pushing a lot of investors into higher tax bands. For these investors, it may now be more prudent to hold these properties as limited companies.

If you are looking to dispose of the property in the future, you will be liable for Capital Gains Tax on any increase in value above the Annual Exempt Amount. This is calculated at 18% of the increase, if the gain means you remain in the basic rate tax band or 28% for the higher rate tax band. You only pay Capital Gains Tax on your overall gains above your tax-free allowance (the Annual Exempt Amount) which is currently £12,300 and certain costs can also be deducted, such as Stamp Duty Land Tax and allowable purchase and disposal fees.

Corporate Ownership

To own property through corporate ownership, the property will need to be purchased by a limited company (or transferred into one) where the investor(s) are directors and shareholders of the company.

Currently, limited companies can offset all mortgage interest relief and the profits generated are subject to corporation tax, rather than income tax. This has the benefit of corporation tax currently being just 19%. Furthermore, Capital Gains Tax is not payable for assets sold by a limited company.

This is a good option if you do not intend to take a salary out of your investments and intend to reinvest the profits in the company. If you do need to take a salary or dividend out, further consideration needs to be given to this. 

If you require a salary, then the most efficient option is part salary, part dividends and the structure and tax implications would depend on other incomes and investments held. If a director receives no other or a low income, then they can earn a total salary, subject to normal tax rules, of up to £8,840 per annum with no liability for national insurance contributions or income tax. Salaries paid are an allowable expense against company profits. 

Corporation Tax relief is also available for pension contributions from limited companies for the benefit of employee directors. The limit you can contribute and still receive tax relief is currently 100% of your income, up to a maximum of £40,000 per tax year. It may also be advantageous therefore to take part of the profit as pension contributions.

Additional costs associated with buy to let limited companies

There are costs associated with setting up and running a limited company, as well as increased legal costs, due to the added layer of complexity involved. Whilst these costs are not often prohibited, a good understanding of these is always recommended before deciding to utilise this option. Mortgage costs may also be higher.

Joint Ownership

One other avenue to explore if you have a spouse or partner is joint ownership. In this scenario, the profits can be split at least 50:50. If you’re your partner or spouse has a low or nil income; this can bring tax savings. 

If you own the property as tenants in common rather than joint tenants, you may be able to elect for ownership not to be equally split, meaning that the owner with nil or lower-income has responsibility for most of the profits as is practical. This is not always accepted by HMRC, so it always advised to take advice from a tax expert.

Buy to let limited company – a summary 

What may seem like a straightforward choice on the surface, the decision on how to structure a buy-to-let investment has many layers of complexities, based on personal circumstances and what you wish to get out of the investment. What is right for one person, will not be right for another.

Because of this, it is always worth speaking to a property tax expert, who can discuss your own circumstances, and guide you through the various options available.

Setting up a buy to let limited company – how Alexander & Co can help

At Alexander & Co, we have a specialist property tax team that can assist you in weighing up all your options and working out the best solution for you.

Our property accountants and specialist property tax advisors have knowledge and expertise in a wide range of investments and have worked with many companies, entrepreneurs, individuals, trusts and organisations in the commercial and residential sectors for many years.

If you are looking for a chartered accountant and tax advisor with a wealth of knowledge and expertise in property, then Alexander & Co are able to assist. If you need any further advice, please contact us using the form below for a fee quote and to discuss how we can assist you.  

Further information on our property tax services, can be found here.

you may also find these property guides useful:

Get in touch

We would love to hear from you. Please fill out this form and we will be in touch.


Previous Article


CJRS and other COVID-19 support changes and deadlines from July 2021

Next Article

Alexander & Co Manchester office

Alexander’s Manchester Office Expands with Head Office Move

Contact a professional now