Setting up a limited company as a UK landlord can be a smart move if you have a large portfolio, but can be a faff for short-term investors.
With growing tax pressures on UK landlords, many are considering setting up a limited company to manage their finances. But is it the right move for you? While this structure does come with tax advantages and financial protection, it also comes with higher costs and a lot of admin.
Here, we talk about the pros and cons of limited companies for landlords, helping you make the right decision.
However, it’s always worth consulting a professional to get expert advice on your specific circumstances.
Why Are More UK Landlords Using Limited Companies?
Since 2017, the UK government has stopped landlords being able to claim mortgage interest as tax relief under Section 24 of the Finance Act. This means landlords can no longer claim their mortgage interest as an expense, making their tax liabilities higher.
To get their tax payments back down, many landlords went on to set up limited companies. This allowed them to bypass Section 24, benefit from lower corporation tax rates, and reinvest profits more easily. According to estate agent Hamptons, over 50,000 buy-to-let limited companies were formed in 2023, making it the most popular year on record for incorporation.
Pros of Setting Up A Limited Company As A UK Landlord
1. Lower Tax Rates for Higher-Rate Taxpayers
If you are a higher-rate taxpayer (40% or 45%), setting up a limited company as a UK landlord can reduce your tax payments. Limited companies pay corporation tax (currently 19–25%), which is lower than the higher personal income tax rates, which can go up to 40%+.
Example:
John, a London landlord earning £60,000 per year from employment and £20,000 from rental income, would pay 40% tax on his rental profits if he owns properties outside of a limited company. However, if he owns the properties through a limited company, he would pay only 19-25% in corporation tax, saving a significant amount.
2. Full Mortgage Interest Deduction (Avoiding Section 24)
Unlike individual landlords, limited companies can list 100% of mortgage interest as a business expense. This reduces taxable profits and can lead to tax savings, especially as current interest rates remain high.
3. Ability To Retain Profits
When you run a limited company as a UK landlord, you can keep profits within the business without facing personal income tax. This allows you to reinvest in new properties, renovations, or debt repayment at a much faster rate than personal landlords.
4. Limited Liability Protection
Owning properties through a limited company protects your personal assets. If the company comes up against financial difficulties, your personal wealth (e.g., your home, savings) is protected unless you’ve provided personal guarantees for loans.
5. Easier Estate and Inheritance Planning
Transferring properties through a limited company can be more tax-efficient for inheritance planning. Instead of selling properties (which are liable for capital gains tax), you can transfer company shares to family members, potentially reducing inheritance tax liability.
6. Access to Business-Specific Mortgages & Financing
Some lenders offer special buy-to-let mortgages with longer terms, higher borrowing limits and more flexible repayments, which private landlords are unable to get.
Cons of Setting Up A Limited Company As A UK Landlord
1. Double Taxation
While limited companies pay lower corporation tax, you must pay personal tax on income withdrawn from the company, either as:
- Salary (subject to PAYE & National Insurance)
- Dividends (taxed at 8.75%, 33.75%, or 39.35% depending on income level)
If you need to take rental profits as personal income regularly, double taxation can actually make limited companies less tax-efficient.
Example:
Sarah, a landlord who wants to live off her rental income, may pay 19% corporation tax and then an extra 8.75% or more on dividends, meaning she doesn’t get to enjoy an overall tax advantage.
2. Higher Costs & Administration
Running a limited company comes with extra costs and a lot of admin, including:
- Annual accounting and filing fees (£1,000+ per year)
- Legal fees for company setup & property transfers
- Submitting accounts to Companies House (publicly visible records)
3. Higher Mortgage Rates & Fewer Lenders
Most lenders charge higher interest rates on limited company mortgages compared to individual buy-to-let loans. In addition to this, fewer lenders offer mortgages to corporate landlords, making financing more difficult.
4. No Capital Gains Tax (CGT) Allowance
If an individual sells a property, they get a CGT allowance (£6,000 in 2024). Limited companies don’t get this allowance and have to pay corporation tax on the entire gain when selling a property. This may mean higher taxes overall.
5. Property Transfer Costs (Stamp Duty & CGT)
If you transfer existing properties into a limited company, you will likely face:
- Stamp Duty Land Tax (SDLT) on the full property value
- Capital Gains Tax (CGT) on any increase in property value since purchase
- Early mortgage repayment fees (if switching lenders)
These costs can be high and must be weighed up against any potential tax savings.
Which Landlords Should Consider A Limited Company?
Best Suited For:
- Higher-rate taxpayers (40-45%) looking to reduce tax liability
- Portfolio landlords (3+ properties) reinvesting profits
- Long-term investors who plan to retain and grow their property holdings
- Landlords planning inheritance tax strategies
Who Might Be Better Off Staying as an Individual Landlord?
- Basic-rate taxpayers (20%) who own only 1-2 properties
- Landlords who need rental income as personal earnings
- Short-term investors who buy & sell properties frequently
Is A Limited Company Right for You?
The decision to operate as a limited company depends on your investment goals, tax position and long-term strategy. While a limited company offers tax efficiency and asset protection, it also comes with higher costs, double taxation, and fewer mortgage options.
Before making a decision, speak to a tax specialist or property accountant to work out if a limited company is the best structure for your buy-to-let business.
FAQs About Limited Companies For UK Landlords
1. Can I transfer my existing properties into a limited company?
Yes, but you will likely face Stamp Duty Land Tax (SDLT), Capital Gains Tax (CGT), and mortgage refinancing costs. Speak to an accountant before making this move.
2. Do I need an accountant for a limited company?
Yes, most landlords hire an accountant to manage corporation tax, annual filings, and Companies House compliance.
3. Can a limited company get buy-to-let mortgages?
Yes, but interest rates are usually higher, and fewer lenders offer corporate buy-to-let products.
4. Is a limited company good for inheritance tax planning?
Yes, property shares can be passed down more tax-efficiently than individually owned properties.
Need Expert Advice?
If you need help managing your property, J Property Management is a London property management company that can help. To find out more get in touch with the team at info@jpropertymanagement.co.uk
