What Are the Tax Benefits of Buying Property Through a Company?

Introduction

More landlords in the UK are buying property through limited companies rather than in their personal names. This approach can bring several tax advantages, especially for higher-rate taxpayers or those building large property portfolios. However, it also comes with additional costs and responsibilities.

Understanding how the tax treatment differs between personal and company ownership can help you decide whether this structure suits your goals. This article explains the key tax benefits of buying property through a company and what to consider before making the switch.

1. Lower Corporation Tax Rates

One of the main reasons investors choose a company structure is the lower rate of Corporation Tax compared to higher-rate personal Income Tax.

• Companies pay Corporation Tax on their profits at 25% (2024 25 rate).

• Individuals pay Income Tax on rental profits at 20%, 40%, or 45%, depending on their income level.

For landlords who fall into the higher or additional tax brackets, paying 25% Corporation Tax can be significantly cheaper than paying 40% or 45% Income Tax on rental income.

Example:
If a landlord earns £40,000 in rental profit personally, they would pay £16,000 in tax at 40%.
If the same profit is made through a company, the Corporation Tax bill would be £10,000, leaving an extra £6,000 retained in the business.

2. Full Mortgage Interest Relief

Since 2020, individual landlords can no longer deduct their full mortgage interest costs from rental income. Instead, they receive a basic-rate tax credit of 20%, regardless of their income bracket.

Companies, however, can fully deduct mortgage interest and finance costs from rental income before paying tax.

This makes limited companies particularly attractive for landlords with high borrowing costs or larger portfolios financed with mortgages.

Example:
An individual landlord earning £50,000 in rental income with £20,000 in mortgage interest would pay tax on £50,000 (with a 20% credit applied later).
A company landlord would pay Corporation Tax on £30,000 (£50,000 £20,000), reducing the overall liability.

3. Retaining Profits Within the Company

A company allows you to retain profits within the business rather than withdrawing them immediately.

This means you can:

• Reinvest profits into more property purchases.

• Use profits to repay loans or fund renovations.

• Delay paying personal tax until you withdraw money as dividends or salary.

By reinvesting profits, you can grow your portfolio faster while deferring personal tax.

If you take money out as dividends, you will pay Dividend Tax on top of Corporation Tax, but you can manage the timing to suit your income and tax position.

4. More Efficient Inheritance Planning

Owning property through a company can make Inheritance Tax (IHT) planning easier. Instead of transferring physical property, you can transfer shares in the company to your heirs.

This approach may reduce Stamp Duty and legal costs compared to transferring properties individually. It also allows more flexible ownership structures, such as using family investment companies or trusts to pass on wealth tax efficiently.

Although Inheritance Tax still applies, careful planning can help reduce its impact.

5. Potential for Shared Ownership and Flexibility

Buying property through a company offers greater flexibility in ownership and profit distribution. You can:

• Add or remove shareholders easily.

• Pay dividends based on shareholding proportions.

• Allocate profits strategically to family members with lower tax rates.

This flexibility can help families or business partners manage tax liabilities more effectively.

6. Deductible Expenses

Limited companies can claim a wider range of tax-deductible expenses than individuals. Common allowable expenses include:

• Mortgage interest and finance costs.

• Property repairs and maintenance.

• Letting agent fees.

• Accountancy and legal costs.

• Travel and administrative expenses.

Because expenses are deducted before calculating Corporation Tax, this reduces the company’s overall tax bill.

7. Easier to Raise Finance

Companies can sometimes find it easier to raise finance because lenders view them as separate legal entities. Mortgage products for limited companies are now widely available, and interest rates are increasingly competitive.

Lenders may allow higher borrowing limits because Corporation Tax is lower than higher-rate personal tax, improving the company’s post-tax income position.

8. Protection from Personal Liability

Although not strictly a tax benefit, limited companies offer limited liability protection, meaning your personal assets are generally protected if something goes wrong with the business.

This structure can provide peace of mind, especially for landlords managing multiple properties or higher-risk developments.

When Company Ownership May Not Be Beneficial

While the tax benefits can be significant, owning property through a company is not always the best option. Consider the following:

• Dividend Tax: When you withdraw profits as dividends, you pay tax at 8.75%, 33.75%, or 39.35%, depending on your tax band.

• Higher setup and running costs: Companies must file annual accounts, Corporation Tax returns, and Companies House submissions.

• Stamp Duty and Capital Gains Tax: If you already own properties personally and transfer them into a company, these taxes may apply on the transfer.

• Mortgage rates: Buy-to-let mortgages for companies can be slightly higher and may require larger deposits.

It is important to calculate the long-term tax implications before deciding.

Example Scenario

Emma and Alex each earn £60,000 per year from employment. They buy two investment properties generating £40,000 in total annual profit.

If they own the properties personally, their rental profits are taxed at 40%, leaving £24,000 after tax.
If they buy through a company, Corporation Tax at 25% reduces the bill to £10,000, leaving £30,000 after tax within the business.

They reinvest the retained profit to buy another property the following year, accelerating their portfolio growth.

Although they will eventually pay Dividend Tax when taking profits personally, they can choose when and how much to withdraw, providing flexibility.

The Role of an Accountant

Before setting up a company for property investment, an accountant can help you:

• Calculate potential savings compared with personal ownership.

• Structure the company for tax efficiency.

• Register for Corporation Tax and maintain statutory records.

• Manage mortgage interest relief, expenses, and dividend planning.

• Stay compliant with Companies House and HMRC.

Professional advice is particularly important if you already own properties, as transferring them into a company can trigger tax costs.

Conclusion

Buying property through a limited company can offer substantial tax advantages, including lower Corporation Tax rates, full mortgage interest relief, and the ability to retain and reinvest profits. It can also improve inheritance planning and provide flexibility in ownership.

However, company ownership also introduces added complexity, potential Dividend Tax, and administrative responsibilities. The right choice depends on your income level, portfolio size, and long-term goals.

By consulting an accountant and modelling both personal and company scenarios, you can determine the most tax-efficient structure for your property investments.