Advantages of holding property in a limited company

In the UK, you can buy investment property as an individual and pay income tax on any rental profits, or you can buy it through a limited company and pay corporation tax. Buying property to rent out can be a complex area to navigate correctly.

In recent years, some of the benefits of owning investment property in a limited company have been minimised, including changes to mortgage tax relief rules. However, there is still an opportunity to make substantial tax savings by owning property through a limited company.

If you’re planning on investing in a rental property, HMO, or holiday let properties, you should consider all your ownership options to maximise tax savings. A limited company structure can work particularly well for tax efficiency if you are a higher-rate taxpayer, as corporation tax rates paid by limited companies are lower than income tax rates.

If you are considering setting up a limited company as a property investment vehicle to purchase buy-to-let properties, this blog will examine the advantages and disadvantages of owning property through a limited company, as well as the taxation of rental profits.

Ways of holding investment property

There are three main ways to hold investment properties. These are:

1. As an individual in your name.

2. Through a limited company.

3. Through a trust.

Can I set up a limited company to buy property?

Yes, you can set up a limited company to purchase buy-to-let property and there can be many tax advantages along with other benefits to buying properties through a company.

Is it worthwhile to put property into a limited company?

This blog will explore the advantages and disadvantages of buying property through a limited company to minimise tax liabilities. However, this may depend on the number of properties you own, your property income, your future plans, whether you already own the property personally, and your personal tax bracket.

Advantages of buying property through a limited company

1. Tax treatment of profits - income tax vs corporation tax

For private landlords, property income is taxed through income tax, alongside other forms of income such as a salary or interest.

Higher rate taxpayers and basic rate taxpayers

The income tax paid differs for basic rate taxpayers, higher rate taxpayers, and additional rate taxpayers.

Below are the current tax bands and tax rates for England, Northern Ireland and Wales:

Note: The income limit to qualify for the Personal Allowance is £125,140

If you fall into the higher tax band or the additional tax band, you are likely to pay a substantial amount of tax on rental property income.

If you invest in property via a limited company, your company pays corporation tax on rental profits. The corporation tax rates are currently:

• Small profits rate - Companies with profits up to £50,000 – 19% tax on all profits
• Main rate (eligible for marginal relief) - Companies with profits between £50,000 and £250,000 – 25% reduced by a marginal relief.
• Main Rate (not eligible for marginal relief) - Companies with profits above £250,000 – 25% tax on all profits

If you run a limited company, you may still be liable to pay income tax when you extract money from the company. However, many limited company landlords pay themselves a small salary and dividends, as dividend tax rates can be significantly lower than income tax rates (see the dividend tax rate table below).

2. Tax treatment of mortgage interest costs

Mortgage interest rates can fluctuate and can cost landlords many thousands of pounds.

Private landlords cannot claim mortgage interest expenses against their rental income. However, individuals with a buy-to-let mortgage are eligible for a tax credit of 20% of their monthly mortgage interest payments.

Note: If you’re a higher-rate or additional-rate taxpayer, you won’t get all the tax back on your mortgage interest costs.

If you purchase property through a limited company, mortgage interest is treated as an allowable expense. This allows you to deduct the cost of mortgage interest from profit, thereby minimising the corporation tax the company pays.

3. Inheritance tax benefits

If you are planning to pass property to your children or other family members when you die, buying the property through a limited company can help minimise your inheritance tax bill. Your beneficiaries may be eligible to apply for Business Property Relief (BPR) on the assets.

Talk to an accountant to consider using trust structures, share schemes and other methods to pass on wealth.

Individual property investors could potentially pay 40% inheritance tax on the value of properties above the £325,000 threshold.

Inheritance tax is complex, so please seek professional advice from qualified accountants and tax advisors, such as dns accountants to assist with comprehensive inheritance tax planning. Doing this could save you and your family thousands of pounds now and in the future.

4. Capital Gains Tax

When owning property through a limited company, any profits you earn from the sale of properties will be subject to Corporation Tax (Between 19% and 25%, depending on profits). However, when you sell property as an individual, you will be subject to Capital Gains Tax on any profits/gains made on the sale. If you are a higher or additional rate taxpayer, the CGT rate may be higher than the Corporation Tax rate.

Below are Capital Gains Tax rates (for disposals made on or after 30 October 2024):

5. Reinvesting funds

If you are looking to build a property portfolio comprising multiple properties and reinvest your income to purchase additional properties, then a limited company may be a more suitable option.

When using a limited company structure, profits after corporation tax can be retained within the company and directly reinvested, making reinvestment more tax-efficient.

Individual landlords pay income tax on all profits, so they will reinvest the money after paying income tax.

6. Limited liability

Holding investment properties through a company rather than individually means you will benefit from limited liability for any losses that your property business incurs. If legal action is taken against the company or it falls into debt, you won’t be held personally responsible.

However, it is worth noting that some mortgage providers may ask you to sign a personal guarantee as a director of the company if you are looking to take out a buy-to-let mortgage.

7. Flexible ownership

pIf you purchase property directly, the maximum number of owners of a property is four people. However, when buying property through a limited company, there can be any number of indirect owners or shareholders within the company. This gives you more flexible options for ownership, especially if you are looking to invest with multiple family members.

Disadvantages of holding property in a limited company

Like many things, there are also disadvantages to property ownership through a limited company.

Salary and dividends

When running a company, you’ll need to pay yourself a salary to extract rental income from the company. This may still be liable to income tax (depending on your total earnings from all sources). However, salaries are considered a cost when calculating your pre-tax profit for corporation tax purposes.

Many limited company owners take a proportion of rental income as dividends; however, these are NOT considered a business expense, so you’ll still pay corporation tax on the profits as well as dividend tax for anything you take as a dividend.

For tax year 2025/26, the tax-free allowance on dividends is £500. The tax you pay on dividends above this amount depends on your tax band. The following dividend rates apply:

If you plan to retain profits from rental income within the company and reinvest them, then this won’t be a problem. If you want to draw large amounts of personal income, then you need to consider the tax rates and how to do this. Speak to a tax advisor, such as dns accountants, to find out if splitting income or putting money into a pension could be more tax-efficient option.

Accountancy fees

Running a limited company requires additional compliance and adherence to legislation with Companies House and HMRC, including the submission of annual accounts and corporation tax returns. You are likely to need an accountant to undertake this work, which will incur accountancy fees.

Transferring personal property into a company

Landlords should be aware that transferring personal property to a limited company without expert advice could trigger substantial tax charges if not done correctly.

If you already own a property or multiple properties individually and are considering transferring properties to a limited company, there are tax implications you need to consider.

A limited company is a separate legal entity from an individual and attracts different tax charges that can often be lower than some personal tax rates. Incorporating a personal property portfolio into a limited company can provide tax benefits if done correctly and with the guidance of professional tax advice.

In all cases, seek professional advice from dns accountants before making any transfers.

Here are some of the implications to consider when transferring property into a limited company.

Capital Gains Tax (CGT)

A transfer of property to a company is chargeable to Capital Gains Tax (CGT) at the market value of the property. Even if you transfer it at a lower than market value or gift it to the company, it is still subject to CGT.

The amount of CGT you will pay is dependent on how much income tax you pay. See CGT rates above.

Stamp Duty Land Tax (SDLT)

Stamp duty may be payable on the transfer of properties into a limited company, depending on the value of each property. The calculation of the charge is based on market value, not transfer value. If the property isn’t your main residence, you’ll also pay an additional 3% SDLT, as it’ll be classified as a second home.

Legal & mortgage charges

You’ll need a solicitor to complete the necessary paperwork for a legal transfer, and also some mortgage lenders will charge you a repayment fee, so you must factor in these legal fees and mortgage costs before transferring property from personal ownership to a company.

It is often more tax-efficient to register your company before purchasing property, rather than transferring it later.

Ongoing costs

Running a limited company requires additional compliance and adherence to legislation with Companies House and HMRC, including the submission of annual accounts and corporation tax returns. You are likely to need an accountant to undertake this work, which will incur additional fees.

Can I live in a property if my limited company owns it?

Yes, you can, but be aware that there may be tax consequences. Seek professional advice before moving in.

As many mortgage lenders do not allow you to live in a property purchased with a buy-to-let mortgage, there may be implications if the property is purchased using a buy-to-let mortgage. Seek advice from your mortgage lender.

Should I buy my first buy-to-let property through a limited company?

This depends on whether you plan to buy other properties and become a multi-property investor. If you plan to rent out only one or two properties, setting up and running a limited company may not be financially beneficial or more tax-efficient.

If you plan to buy several properties, it is often better to do so using a limited company structure from the outset. Seek advice before purchasing the property and discuss your plans with a qualified accountant such as dns accountants.

Summary

Property investments can be complex. There are many benefits to buying property through a limited company, rather than owning them as personal assets. However, this will depend on your circumstances and plans. You need to consider the potential size of your future property portfolio, as well as the implications of transferring property from personal ownership to a limited company to maximise tax efficiency.

Here at dns accountants, we support property investors and landlords on whether it is better to buy property individually or through a limited company. For more help and advice, call us today on 03300886686, or you can also e-mail us at info@dnsaccountants.co.uk.

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