Should you buy property in a limited company? Pros and cons for London investors

Since the implementation of Section 24 of the Finance Act 2015 in February 2016, the number of properties registered and held in a buy-to-let (BTL) companies has increased significantly. According to a recent report, BTL companies in the UK have more than quadrupled in the last nine years, from just under 93,000 in Q1 2016 to over 400,000 in Q1 2025. Last year alone, over 61,500 new limited companies were set up for BTL investments, marking a 23% annual increase from 2023.

Currently, over 680,000 BTL properties are in a limited company structure in the UK, and the number is growing at an average of 70,000 to 100,000 annually. As the most popular single type of business, there are four times more BTL companies now than fast food chains and hairdressers in the country. However, although it is a growing trend, investors must consider many factors before buying a property in a limited company.

So, what is a limited company for property investment?

Using a limited company is an alternative to holding property rather than holding it in your own personal name. As a separate entity the owners’ liability is limited and there may also be some tax advantages.

Here are some of the benefits of a limited company structure:

1. Claim mortgage interest

Like most businesses, portfolio investors commonly seek a loan to invest in a property. However, there is a difference between mortgages provided to a private landlord and a company when claiming interest as an expense.

As per Section 24, landlords can no longer deduct the interest paid on mortgages as an expense when declaring rental income profits. Instead, they get a tax credit of up to 20% of the interest paid. For higher rate tax payers this means some of the interest is not allowable when calculating the tax liability. However, this rule does not apply to properties held in a limited company that can deduct the entire interest on the mortgage as an expense when calculating their profits chargeable to corporation tax.

2. Efficient tax planning

Private landlords with multiple sources of income or properties to rent are likely to fall in the higher-rate tax slabs and as a result the rental income may be taxed at 40% or even 45% if the total income is above £125,140. In addition, the landlord will lose their personal allowance if the total income is over £100,000, adding to the overall tax payable. Although companies do not get a tax-free personal allowance in the same way that individuals sometimes do, owning a property in a company structure can be a tax-saving strategy as Corporation Tax rates do not exceed 25%.

3. Reinvesting and limited liability

As the owner of a private limited company, you can reinvest the profits to expand your portfolio if you do not extract the rental income as a salary or via dividends. Reinvesting can be tax efficient as income is reallocated and not distributed.

Another benefit is that while the maximum number of individuals who can share direct ownership of a privately held property is four, there is no limit to the number of individuals who can indirectly own property by holding shares in a limited company.

4. Limited liability for companies

While privately held residential properties account for an individual’s assets, a limited company’s properties are not subject to personal liabilities and losses incurred by lawsuits and debt. However, as a company shareholder or Director seeking property financing, the lender may ask you to sign as the guarantor for the loan repayment.

While these are some advantages of acquiring property assets as a limited company, there are also specific surcharges and added accounting costs that could be counterproductive if you are a basic-rate taxpayer.

1. Fewer and more expensive mortgage options

The lender’s extent of risk determines mortgage interest rates, and since the liability stakes are higher for a limited company, lenders have fewer mortgage options. Therefore, although companies can deduct the entire interest on the mortgage as an expense, the interest rate on the loan may be higher for companies. Individual property buyers on the other hand generally benefit from lower mortgage rates.

2. Additional accounting required

As your limited company’s director, you must maintain accounts legally and submit records to HMRC and Companies House each year. You will also be required to prepare a Company Tax Return for HMRC and work out your Corporation Tax bill. You may also be required to set up and operate a PAYE (Pay-As-You-Earn) system if you intend to pay yourself a salary and make National Insurance Contributions (NIC) or issue dividends to extract profits that are taxable on shareholders.

3. SDLT surcharge

Regardless of whether it is your first property, as a limited company, you must pay the additional 5% surcharge that is levied on individual buyers of additional properties. Also, a flat 17% SDLT is payable on purchases worth over £500,000 by a company if the property is not rented out on a commercial basis.

4. No CGT allowances and few benefits for basic-rate taxpayers

Whether a company or an individual, BTL properties will be subject to tax on any increase in value. While private sellers pay Capital Gains Tax based on their income tax band (18% for basic rate and 24% for higher/additional rate), Companies have a fixed Corporation Tax of 19% to 25% depending on the level of profits in the year of disposal. Companies also do not benefit from the CGT allowance of £3,000 provided to individuals.

What is the best option for a new buy-to-let investor?

The answer is subjective as it depends on the investor’s individual circumstances for the different holding options. Suppose you are a private landlord with a small property portfolio where the annual income generated from renting is within the basic tax rate. In that case, the benefits of a limited company may not be relevant to you.

However, if you plan to expand your portfolio and run it as a fully-fledged business, the holding structure of a company may help optimise your tax bill. Also, it is important to point out that if you are an existing landlord looking to transfer your properties to a limited company, it is considered similar to a sale, and taxes such as SDLT and CGT may be payable on the property transfer. Therefore, transferring existing portfolios in a company only makes sense if the long-term benefits can offset the short-term costs and taxes.

Before you make any decision, always discuss the different scenarios of your investment strategy with a UK-based finance or tax expert for the best possible decision. As a leading estate and lettings agency, we have 21 branches across London and 14 overseas offices to guide landlords on their investment journeys including providing guidance on tax considerations. From sourcing tenants to managing rents, repairs and furnishing, we provide a wide range of property management services that make us stand out. Contact us to learn more about investing in London properties.