In recent years, more buy-to-let investors in the UK have been purchasing properties through limited companies rather than in their personal names. In 2023 alone, a record 50,004 such companies were formed, bringing the total to over 615,000, up a whopping 82% since 2016.
The trend is being supercharged by tax changes, phased in between 2017 and 2023, that hit landlords where it hurts: mortgage interest relief. Yet while many landlords believe they’re playing a winning game by going corporate, a swelling number are discovering a hard truth: that they might actually be paying more.
The Tax Tweak That Changed Everything
Let’s rewind to 2015. Back then, landlords could deduct all of their mortgage interest from rental income before paying tax. A fair deal, most would say. But starting in 2017, the government began phasing that out. By 2020, individual landlords could no longer fully offset mortgage interest. Instead, they now receive a flat 20% credit, regardless of their income tax band.
Meanwhile, limited companies can still fully deduct mortgage interest as a business expense before calculating tax, a big win and more so for higher-rate taxpayers.
But There’s a Mortgage Catch
Here's where things get sticky. Limited company mortgages cost more, often a lot more.
Let’s break down the numbers on a £200,000 property with a £50,000 deposit and a £150,000 interest-only mortgage.
Option 1: Five-Year Fixed — Lowest Rate Available
- Personal Name
- Rate: 4.14%
- Fee: 3% (£4,500)
- Monthly Payment: £533
- Total 5-Year Cost (incl. tax): £42,876
- Limited Company
- Rate: 4.69%
- Fee: 7% (£10,500)
- Monthly Payment: £627
- Total 5-Year Cost: £48,120
Going the limited company route costs you £5,244 more, even after tax savings.
Option 2: Five-Year Fixed — Lowest Total Cost
- Personal Name: £41,315 (with tax)
- Limited Company: £40,800
Here the limited company option wins, but only by £515 over five years. Not really a windfall.
Option 3: Two-Year Fix
- Personal Name: 5.29%, No fee
- Limited Company: 6.59%, No fee
Again, company mortgages are pricier, though the gap is narrowing as lenders compete for business.
So... Why Are Landlords Still Doing It?
Despite the cost premium, limited companies remain appealing, particularly for those playing the long game.
You’re Reinvesting, Not Living Off the Income
Company profits are taxed at 19–25%, and you’re only taxed personally when you take money out. That means more capital stays in the pot to buy more properties or pay down debt.
You’re a Higher/Additional Rate Taxpayer
If your rental income bumps you into the 40–45% bracket, personal ownership can be punishing. Company ownership softens the blow with a lower effective tax rate.
You’re Thinking Generationally
Want to pass your portfolio on to your kids? A company structure makes it easier. You can transfer shares, bring children in as directors, and possibly lower inheritance tax exposure.
When Company Ownership Might Not Be Worth It
Despite the perks, going corporate isn’t for everyone. In fact, for many smaller landlords, it might be overkill. Here's why.
You Need the Income Now
If you rely on rent to pay your own bills, limited company ownership can backfire. You’ll face double taxation: once through corporation tax and again when taking money out as dividends or salary (which may also come with national insurance charges).
You Own Just One or Two Properties
Between setup costs, higher mortgage fees and the need for annual accounts, the admin may outweigh the benefits.
You’re Planning to Sell Soon
Yes, company ownership might trim capital gains tax. But once you try to extract the proceeds, that benefit often vanishes. Moreover, the capital gains tax rate for individuals has tanked to 24% for higher-rate taxpayers, further closing the gap.
Could the Rules Change Again?
Yes. In fact, some experts think the government could soon clamp down on limited company landlords. Here’s why.
- The abolition of mortgage relief for holiday lets shows the Treasury is willing to pull the rug on tax perks.
- More landlords moving into companies could be seen as exploiting a loophole, tempting the government to close it.
- Encouraging home ownership, not landlord growth, is a political priority. Making buy-to-let less lucrative could push more properties back onto the market for first-time buyers.
But it’s a risky move. A crackdown could mean:
- Rent hikes (as landlords pass on costs)
- A sell-off by smaller landlords
- A shortage in rental stock, not great during a housing crunch
And with corporation tax already soaring (from 19% to 25% for many), some argue the government has already made its move, and that any further tightening would be politically dangerous.
Conclusion
Setting up a limited company might feel like a tax hack, and for some, it genuinely is. But the devil’s in the details.
If you’re a higher-rate taxpayer planning to build a portfolio, reinvest profits and hold long-term, the maths works in your favour. But if you’re just trying to top up your income, own a couple of rentals or plan to cash out soon, the cost of going corporate might outweigh the perks.
As always, the best advice is to run the numbers carefully. A good accountant can help you model your specific situation and avoid falling into the “I thought I’d save money” trap, only to realise, years later, that it cost you more.
In short: don’t follow the crowd. In buy-to-let, what’s right for one landlord could be completely wrong for another.
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