Deciding whether to invest in Buy to Let property in your own name or through a limited company is one of the most important financial decisions a landlord can make.
The right choice depends on your individual circumstances, financial goals, and long-term investment strategy.
However, this isn’t a simple decision to make, especially since Buy to Let is a long-term investment, and property returns, as well as the tax rules that affect their profitability, can change over time.
In contrast, if you decide to invest yourself or in a company, it’s not straightforward to switch, so you have to be sure it’s the right thing now – and in the future.
One of the primary reasons landlords are investing through a company is that the tax rules governing investments made directly or through a company with a mortgage have changed.
This was because, starting in 2017, the previous government began to curb the growth of the Private Rented Sector (PRS).
One way it chose to do this was to ‘penalise’ buy to let investors and landlords by essentially taxing them on the rental income, rather than being able to deduct all financial costs at the tax rate they paid, including mortgages. This was done through Section 24 of the Finance Act 2015.
Introduced in stages and fully enforced from April 2020, Section 24 restricted landlords from deducting all mortgage interest from their rental income. Instead, they now receive a basic-rate tax credit of 20%, regardless of whether they pay higher tax rates.
This didn’t just affect higher-rate taxpayers, though. If someone was a lower-rate taxpayer, this change meant some were pushed into a higher-rate tax bracket.
The impact of this was much higher tax bills, especially for highly geared landlords who were higher tax rate payers, and as a result, the change reduced profitability for landlords and, in some cases, made portfolios financially unviable.
However, landlords could still fully deduct mortgage and finance costs by operating through a limited company, an approach that also benefited the government by improving transparency and ensuring tax on profits was more easily collected.
That said, while investing through a company can seem like an attractive solution, it’s important to weigh the potential advantages against the drawbacks before making the move.
Key Benefits of Letting via a Limited Company
- Full mortgage interest relief: All finance costs can be deducted from rental income.
- Potentially lower tax bills: Corporation tax (currently 25%) is often lower than higher-rate personal income tax.
- Estate planning advantages: Passing property wealth to family members can be more tax efficient through a company.
- Easier portfolio management: Especially for landlords with multiple properties.
The Downsides of Using a Limited Company
- Upfront costs: Transferring existing properties into a company can trigger Stamp Duty Land Tax (SDLT) and Capital Gains Tax (CGT) liabilities.
- Higher mortgage costs: Company Buy to Let mortgage rates can be more expensive and harder to secure.
- Running costs: Additional accountancy fees, tax filings, and administrative duties.
- Dividend tax: You can only draw income if your company makes a profit, and dividend income is taxed separately.
- Lack of flexibility: You can’t easily transfer properties back to personal ownership if tax rules change in future.
In reality, there is no one-size-fits-all answer. The decision to let a property personally or through a company depends on:
- Your current income and tax bracket
- How long you plan to hold the investment
- Whether you are planning to grow your portfolio
- If you're looking to pass on property wealth to others
If you'd like to explore your options for letting your property, why not speak with your local property experts?
The Your Move Content Marketing Team
