Buy-to-let owners have been hit by several punitive tax changes since 2016, resulting in around 100,000 fewer rental homes than when the sector peaked in 2017. One of the biggest changes has been the removal of tax relief available on mortgage interest payments, known as Section 24.
The changes began to be phased in in 2017. However, since the 2021-22 tax year, landlords can no longer fully offset mortgage interest before paying tax, pushing up their tax bill in many cases. Instead, landlords receive a 20% tax credit which for lower-rate taxpayers broadly equates to the amount they could previously offset before the new rules came in. However, most mortgaged higher-rate taxpaying landlords will see their tax bill rise, alongside anyone who receives most or all of their income in the form of dividends.
One way to cushion the blow is to put a property, or properties, into a company or SPV (a special purpose vehicle solely used to hold property). While individuals owning buy-to-lets are effectively taxed on turnover, companies can still offset their mortgage interest payments against their tax bill, so are taxed on their profit.
This is one of the reasons why more companies have been set up to hold buy-to-let properties since 2016 than in the preceding 50 years combined. In the last year, a record 50,000 new buy-to-let limited companies were formed, bringing the total number of active limited companies designed to hold buy-to-let property in the UK up to 345,426. 68% of these had been set up between 2017 and 2023 when the tax changes were phased in.
How do I transfer my buy-to-let into a company?
The process of incorporation essentially involves setting up a limited company and selling the buy-to-let to it. However, this process involves paying stamp duty alongside the 3% surcharge on the transfer and potentially capital gains tax too.
While a company can be set up relatively quickly and cheaply, the property must be sold to the company at market rate, which will require an independent valuation for stamp duty purposes. If the property is mortgaged, this transfer will also require the lenders' consent. However, typically, buy-to-let lenders who will lend to a company are different to those who will lend on a property in a personal name, meaning it’s usually best to transfer the property when the mortgage reaches the end of a fixed term to avoid early repayment charges.
Capital gains tax might also be due at the point of transfer. While this is essentially bringing forward a part payment of a future corporation tax bill, it can be a chunky cost worth considering. For investors putting a property directly into a company from purchase, no capital gains tax will be due.
How do the sums stack up?
Whether it’s worth moving a property from personal to company names will mainly depend on the landlord’s tax status, but also how long they intend to continue owning that property and the level interest rates settle at.
The tax benefits of holding property in a company derive from the ability of landlords to offset 100% of mortgage interest against profits, alongside potentially paying corporation tax at 19% (or 25%) rather than higher rates of income tax. Currently a higher-rate taxpayer holding property in their own name can offset around half of their mortgage interest bill against tax.
For example, a company that owns a £250,000 property with a 75% LTV mortgage generating £1,000 a month in rent will pay around £677 per year in tax. Meanwhile, a lower-rate taxpayer owning the same property in their personal name would pay 33% or £223 more than a limited company and a higher-rate taxpayer would pay 387% or £2,623 more each year.
This means that setting up a company to hold buy-to-let property tends to benefit higher-income taxpayers or those with multiple buy-to-let properties the most. However, it can be costly to extract the profits from a limited company, particularly since the annual dividend allowance has been cut.
Equally, with higher interest rates, it's likely incorporation will look more tax-efficient for a growing number of investors. As landlords who own a buy-to-let in their personal name can be taxed when making a loss, limited companies can’t.
It’s also worth remembering though, that while landlords holding their property in a company can offset more costs against their rental income, mortgage rates tend to be higher. That said, mortgage availability has improved for limited company lending and there is a bit more competition around now, meaning the gap between limited company and personal mortgage rates has narrowed.
It’s also worth noting that from April 2026, HMRC will require some landlords to complete and pay quarterly digital tax returns as part of their push to “make tax digital”. This will apply to landlords earning rental income above £50k a year from April 2026, and rental income above £30k from April 2027. Limited company investors will continue having to file and pay returns annually.
Is it always more profitable to own a buy-to-let in a limited company?
In short, no. As you can see from the example above, setting up a limited company tends to predominantly benefit higher-rate taxpayers or those with multiple buy-to-let properties.
For lower-rate taxpayers, outright owners, and those thinking about an exit within the next few years, it probably makes less financial sense to move into a limited company structure. Here, the costs of moving the property are more likely to outweigh the financial benefits.
Incorporation is also more likely to benefit landlords who own buy-to-lets in London and the South. Given the high cost of property here, generally, in cash terms, landlords' mortgage interest bills are likely to be higher while their yield is lower. Therefore, offsetting more mortgage interest tends to increase the benefits of incorporating a buy-to-let portfolio into a company.
