How to Set Up a Limited Company to Buy Property

At Towerstone, we provide specialist property accountancy services for homeowners, landlords, and property investors. We have written this article to explain the setup steps and considerations, helping you make informed decisions.

Setting up a limited company to buy property has become increasingly popular in the UK, particularly among landlords who want more control over tax, long term planning, and how profits are reinvested. It is often discussed as a way to manage mortgage interest costs more efficiently and to build a property portfolio that sits separately from personal finances.

However, while buying property through a limited company can be beneficial, it is not a one size fits all solution. There are legal, tax, mortgage, and administrative considerations that need to be understood before you go down this route. Many people rush into a company structure without fully appreciating the costs, complexity, and long term implications.

In this guide, I will walk you through how to set up a limited company to buy property in the UK, step by step. I will explain why people choose this route, how to set the company up correctly, how property purchases work within a company, and the common mistakes to avoid. By the end, you should be able to decide whether this structure makes sense for you and how to implement it properly if it does.

Why people use a limited company to buy property

The main reason people consider using a limited company is tax treatment, particularly around mortgage interest.

For individual landlords, mortgage interest is no longer deducted from rental income when calculating taxable profit. Instead, tax relief is given as a basic rate credit, which can significantly increase tax bills for higher rate taxpayers.

In a limited company, mortgage interest is usually treated as a normal business expense and deducted in full before Corporation Tax is calculated. This can make a substantial difference to cash flow and retained profit, especially for highly geared properties.

Other reasons include long term portfolio growth, keeping profits inside the company to reinvest, estate planning, and separating property risk from personal finances.

Step one, decide if a limited company is right for you

Before setting anything up, you need to be honest about your goals.

A limited company can make sense if you plan to buy multiple properties, reinvest profits rather than take them all personally, or build a long term portfolio. It can also work well if you are a higher rate taxpayer with significant mortgage interest.

It may be less suitable if you only plan to buy one property, need the rental income personally, or want simplicity. Companies bring extra admin, costs, and complexity that are not worth it for everyone.

This is the stage where professional advice is most valuable, because the decision affects everything that follows.

Step two, choose the right type of limited company

Most property investors use a private limited company by shares.

This is the standard company structure in the UK and is the most flexible for property investment. The company will be a separate legal entity from you personally, even if you are the sole director and shareholder.

Many investors set up a special purpose vehicle, often referred to as an SPV. This is simply a limited company created specifically to buy and hold property, with no other trading activity.

Using an SPV can make things simpler from an accounting and mortgage perspective, and many lenders prefer it.

Step three, choose the company name and structure

When choosing a company name, avoid anything that suggests non property trading if the company is purely for property investment. Lenders often look at the company’s stated purpose when assessing mortgage applications.

You will also need to decide:

• Who the directors are

• Who the shareholders are

• How many shares are issued

In many cases, one person is both the sole director and sole shareholder. Couples sometimes use joint ownership with equal or unequal shareholdings, depending on tax planning.

These decisions affect how profits are distributed later, so they should be made carefully.

Step four, incorporate the company

You set up the company by registering it with Companies House.

This can be done online and usually takes 24 hours. You will need:

• A company name

• A registered office address

• Details of directors and shareholders

• Articles of association

Once incorporated, the company exists as a legal entity and can own property, open bank accounts, and enter into contracts.

Step five, set the company activity correctly

When registering the company, you must choose SIC codes, which describe what the company does.

For property investment, common SIC codes include those related to letting and operating own or leased real estate.

Using the correct codes is important. It signals to lenders and other parties that the company’s purpose is property investment, not general trading.

Step six, open a business bank account

The company must have its own bank account.

This is not optional. Company money and personal money must be kept completely separate. All rental income, expenses, mortgage payments, and deposits should flow through the company account.

Opening a business account can take longer than expected due to anti money laundering checks, so do this early.

Step seven, fund the company

A newly formed company has no money of its own, so you need to decide how it will be funded.

There are two common methods.

One is to inject money as share capital, although this is usually a small amount. The other is to lend money to the company through a director’s loan.

Director’s loans are very common in property companies. They allow you to put money into the company to fund deposits and costs, and then repay yourself later without additional tax.

How you fund the company has important tax implications, so it should be planned carefully.

Step eight, understand company mortgages

Buying property through a limited company usually requires a limited company buy to let mortgage.

These are different from personal buy to let mortgages. Interest rates are often higher, fees can be larger, and lenders assess both the property and you personally.

Most lenders require:

• Personal guarantees from directors

• A minimum deposit, often 20 to 25 percent

• Evidence of personal income

• A clean credit history

Not all lenders lend to new companies, but many are comfortable with SPVs set up specifically for property.

Step nine, find the property and make the purchase

Once the company is set up and funding is arranged, the property purchase process is similar to any other purchase, but everything is done in the company’s name.

The company is the buyer, the mortgage is in the company’s name, and the Land Registry records the company as the owner.

Stamp Duty Land Tax is calculated based on company ownership, which usually means the higher rates apply, including the 3 percent surcharge.

This is an important cost to factor in from the start.

Step ten, appoint professionals

A company property purchase involves more moving parts than a personal purchase.

You will need:

• A solicitor experienced in company property purchases

• A mortgage broker familiar with limited company lending

• An accountant who understands property companies

Trying to piece this together without the right advisers is one of the most common causes of problems and unexpected costs.

Ongoing responsibilities of a property company

Once the property is purchased, the company has ongoing obligations.

It must:

• Keep proper accounting records

• File annual accounts with Companies House

• File a Corporation Tax return

• Pay Corporation Tax on profits

• Comply with landlord obligations

These responsibilities exist even if the company only owns one property.

How profits are taxed in a company

Rental profits in a limited company are subject to Corporation Tax rather than Income Tax.

Mortgage interest and other allowable expenses are usually deducted before tax is calculated.

If you leave profits in the company, you only pay Corporation Tax. If you take money out personally, additional tax may apply depending on how you extract it, such as salary or dividends.

This flexibility is one of the main attractions of the company route.

What about existing personally owned properties?

A common question is whether you should move existing personally owned properties into a company.

This is usually not straightforward.

Transferring property into a company is treated as a sale for tax purposes. Capital Gains Tax and Stamp Duty Land Tax can both apply, often making the transfer expensive.

For most people, companies are better suited for new purchases, not restructuring existing portfolios without advice.

Common mistakes to avoid

One of the biggest mistakes is setting up a company without understanding the long term costs and admin.

Another is mixing personal and company money, which causes accounting and tax issues.

Many people also underestimate mortgage costs and overestimate tax savings, especially once extraction tax is considered.

Finally, setting up the company incorrectly, with the wrong activity or structure, can limit mortgage options later.

When a limited company usually makes sense

In practice, limited companies work best for investors who are higher rate taxpayers, plan to grow a portfolio, reinvest profits, and are comfortable with additional admin.

They are less suitable for people who want simplicity or rely on rental income for day to day living.

Final thoughts

Setting up a limited company to buy property can be a powerful tool when used for the right reasons and with proper planning. It offers tax flexibility, clearer separation of finances, and a structure that supports long term growth.

However, it is not a shortcut or a guaranteed saving. The benefits depend on your personal tax position, investment goals, and willingness to manage a more complex setup.

In my experience, the people who get the most value from property companies are those who plan carefully at the start, set the company up correctly, and take advice before buying. Those who rush in without understanding the implications often find the structure creates more problems than it solves.

If you are considering this route, taking time to get the foundations right is far more important than rushing to buy the first property.

If you would like to explore related property guidance, you may find how to set up a property management business in the uk and how to sell a house privately to a family member useful. For broader property guidance, visit our property hub.