Since mortgage interest relief for individual landlords was restricted to a basic-rate tax credit, buying through a limited company has become the default question from almost every new landlord I speak to in Renfrewshire and Lanarkshire. It is a genuinely useful structure for some people and an expensive complication for others. The honest answer depends on your tax position and your plans.
The core difference
An individual landlord cannot deduct mortgage interest from rental income before tax. Instead you receive a tax credit worth 20% of the interest. For a basic-rate taxpayer the outcome is broadly neutral. For a higher-rate taxpayer it is not, because you are taxed on rental income calculated before your largest cost.
A limited company is taxed differently. It pays corporation tax on profit after deducting mortgage interest as a normal business expense. Where interest costs are significant and you are a higher-rate taxpayer, that difference can be substantial.
A worked comparison
A property in Paisley: £9,000 annual rent, £5,000 mortgage interest, £1,200 other allowable costs. Landlord is a higher-rate taxpayer.
| Personal name | Limited company | |
|---|---|---|
| Rental income | £9,000 | £9,000 |
| Less other costs | £1,200 | £1,200 |
| Less mortgage interest | Not deductible | £5,000 |
| Taxable profit | £7,800 | £2,800 |
| Tax charged | £3,120 (40%) | £532 (19%) |
| Less interest tax credit | £1,000 | n/a |
| Tax payable | £2,120 | £532 |
On this example the company saves roughly £1,588 a year. But that profit sits inside the company. Taking it out as a dividend triggers dividend tax personally, which narrows the gap considerably if you need the income now. The structure suits landlords reinvesting to grow more than those drawing income.
What it costs you
- Higher mortgage rates — limited company buy to let products typically price above equivalent personal-name products, though the gap has narrowed considerably as the market has matured.
- Higher arrangement fees — often 1.5–2% of the loan rather than a flat fee.
- A smaller lender pool — a good number of specialist lenders, but fewer than the personal-name market.
- Personal guarantees — expect to give one. Incorporation does not insulate you from the borrowing in practice.
- Accountancy costs — annual accounts and a corporation tax return, typically several hundred pounds a year per company.
- Cost to move existing property in — transferring a personally owned rental into a company is a sale. That means ADS at 8% on the market value, possible capital gains tax, and new legal and lending costs. This is the point at which incorporating an existing portfolio usually stops being attractive.
How lenders assess a company application
Almost all lenders want a special purpose vehicle — a company set up solely to hold property, using the appropriate SIC codes, most commonly 68209 or 68100. A trading company with other activities dramatically narrows your options.
Underwriting focuses on the directors and shareholders rather than company accounts, which is helpful because a newly formed SPV has no trading history. Expect personal credit checks on all directors, personal guarantees, and rental stress testing — often at a more generous 125% because corporation tax rather than higher-rate income tax applies.
Who it actually suits
| Your situation | Company is usually... |
|---|---|
| Higher-rate taxpayer, building a portfolio | Worth serious consideration |
| Basic-rate taxpayer, one or two properties | Often not worth the cost and complexity |
| Need the rental income to live on now | Marginal — dividend tax erodes the benefit |
| Reinvesting profits into more property | Frequently the stronger option |
| Moving existing personal properties in | Rarely worth it — ADS and CGT usually kill it |
| Planning to pass property to children | Can help, but take specialist tax advice |
Common questions
This guide is general information, not regulated financial advice, and reflects our understanding of the rules at the date shown. Tax treatment depends on individual circumstances and may change. Your home may be repossessed if you do not keep up repayments on your mortgage. Not all buy to let mortgages are regulated by the Financial Conduct Authority.