Structuring your Buy-to-Let Property Portfolio

When investing in property, especially for buy-to-let purposes, it's important to assess whether owning the property through a company or as an individual is more beneficial. Both structures come with unique advantages and tax considerations that can significantly affect your overall returns. Owning property through a company may offer tax efficiency and greater asset protection, while individual ownership often provides simpler management and different tax rates. However, key factors like your long-term financial goals, expected rental income, and potential liabilities—including Corporation Tax, Income Tax, Annual Tax on Enveloped Dwellings (ATED), Capital Gains Tax (CGT), and Stamp Duty Land Tax (SDLT)—must be carefully evaluated.

By thoroughly examining both options, you can make an informed decision that maximises profitability and aligns with your investment strategy. Understanding the differences in taxation, income generation, and ownership structure is critical to ensuring the success of your buy-to-let investment. In recent years, some firms have pushed the “One Property, One Company” model without fully considering the full scope of tax liabilities. In this article, we explore whether owning property through a company makes sense in every scenario, and if the "one buy-to-let property per company" approach is truly advantageous with real life scenarios.

Annual Tax on Enveloped Dwellings (ATED)

The Annual Tax on Enveloped Dwellings (ATED) is a tax regime introduced by the UK government that applies to corporate structures that hold UK residential properties worth more than £500,000. It is an annual charge and applies to ‘corporate bodies’, such as companies or partnerships with a company as a partner.

The amount of ATED due is based on the property's valuation as of the revaluation date, which is the later of either the property acquisition date or 1 April 2022. This 1 April 2022 valuation will be used to calculate ATED charges for up to the 2026/27 tax year. On 1 April 2027, the property must be revalued again, with the new valuation applying for the following five years.

For the year 2024/25, ATED charges apply as follows:

Certain reliefs are available for companies engaged in specific types of businesses, such as property rental or property trading. Therefore, companies that own buy-to-let properties are exempt from ATED charges if the rental business is operated on a commercial basis. However, these reliefs no longer apply if individuals related to the company, such as family members or relatives of the shareholders, occupy the property even if the person pays the market rent on the property.

Even if no tax is due, an ATED return must still be filed. Unlike other taxes, ATED works on a forward-looking basis, meaning the return must be submitted by 30 April of the relevant year (a year in advance). For example, the deadline for filing an ATED return for the 2024/25 period (which covers 1 April 2024 to 31 March 2025) is 30 April 2024.

Now that we have covered how ATED works, let’s explore how it impacts landlords with portfolios under different ownership structures.

Stamp Duty on Land Tax (SDLT)

All property transactions taking place in England and Northern Ireland are likely to trigger the imposition of SDLT by HM Revenue and Customs (HMRC) if the purchase price exceeds £40,000. Therefore, those looking to extend their buy-to-let portfolio must be aware of SDLT liability and the requirement to file an SDLT return. SDLT is charged at the purchase price of the property if the buyers and sellers are individuals and the market value at the date of acquisition if at least one of the parties is a company.

Regardless of who acquires the property and the SDLT liability, an SDLT return must be filed within 14 days from the date of completion. If any SDLT is due, it must be cleared by the same date.

Capital Gains Tax (CGT)

Capital gains tax (CGT) is a tax that is charged on the disposal of assets in the UK that have been appreciated. As with other taxes, the applicable CGT rates and the method of declaring the gains to HMRC vary with the ownership structure of the assets.

Individual Owners

For individuals selling their buy-to-let property, CGT is charged at 18% for gains up to the basic rate tax band and 24% for those in the higher and additional rate taxpaying band. Additionally, a special 60-day rule for filing the CGT return and paying the CGT bill becomes applicable to individuals selling a UK residential property.

If the seller is a UK resident, the 60-day rule applies only if a UK residential property is sold. However, for non-residents, the rule becomes applicable irrespective of the nature of the property being sold if it is in the UK. Additionally, non-UK residents need to file the NRCGT within 60 days of sale completion even if a loss is made on the disposal.

Companies

Unlike individuals, companies selling a property in the UK need not worry about a separate CGT return. Instead, the capital gains become part of the taxable total profit for the year, and tax is payable at the corporation tax rates.

If a company with multiple properties in the portfolio sells all its properties in the same tax year, the taxable total profits are likely to exceed £250,000. All the gains, along with other profits for that year, will be charged at 25%, which is 1% higher than the rates that apply to higher and additional rate taxpayers.

Owners holding the ‘one property, one company’ portfolio 

Where each property is held under a separate company, the rules on CGT are no different than the ones that apply to a company that holds multiple companies within itself.

If an individual using the ‘one property, one company’ scheme to hold their buy-to-let portfolio finds a buyer willing to buy the shares instead of the property, different CGT rates apply. In such cases, the gain up to the basic rate tax band is taxed at 10% and anything above it at 20%. Having said that, it is unlikely to come across such scenarios, given the drawbacks that come with owning a company.

Income Tax vs Corporation Tax

Taxation of rental income is where most of the planning around the structuring of the portfolio comes in. There is a considerable difference in the tax rates applicable to individuals and companies, but the downside is that companies are not eligible for personal allowances. Therefore, buy-to-let investors must be very cautious when planning around a structure that best works for them.

However, the tax rates are comparatively lower if individuals decide to incorporate the rental property business, as companies pay the tax on the rental income on the following rates.

A marginal relief is available if the profits are between £50,000 and £250,000.

If the company is not resident in the UK, they are not eligible for marginal relief, and 25% applies on the total taxable profit.

But there lie hidden costs in the corporate structure when the profit is eventually extracted from the company.

Other Costs

Register of Overseas Entities (ROE)

The register of overseas entities is a record managed by the UK’s Companies House; a government body responsible for regulating companies.

Companies House introduced “Registration of Overseas Entity” in August 2022 as a key part of the government’s strategy to tackle global economic crime. This requirement requires overseas entities that own UK property or land to declare their beneficial owners or managing officers. Unless they have registered with Companies House and received a unique OE number, foreign entities are prohibited from engaging in activities such as purchasing, selling, transferring, leasing, or placing a charge on land within the UK.

Individual property owners and companies incorporated in the UK need not worry about ROE compliance. However, entities registered overseas and involved in renting or trading a property must be compliant with ROE.

Companies that fall under ROE must do the following:

• Register an overseas entity with Companies House
• File an Annual update Statement on a yearly basis
• If the company has rental income, declare the income on CT600 each year

Therefore, a company incorporated overseas but dealing with property in the UK has further costs to consider because of the ROE compliance need.

Comparison of Costs in Different Ownership Structures

Martin, a Swiss national and resident, is an additional rate taxpayer. He is planning to purchase three buy-to-let properties but is unsure about the route he should take, i.e., owning the properties individually or purchasing each property with a separate company. He plans to hold the property for 4 years before the sale.

Additionally, the following are the property details:

If he goes to the individual owner route, his total taxes for the following four periods will be as follows:

Buy-to-let portfolio held for 4 years under Individual ownership– Tax implications

On the other hand, if Martin decides to operate their buy-to-let venture via the ‘one property, one company’ scheme, there will be further complications, especially as the profits will need to be extracted from the company, either each year or in the final year of operating the company.

When the profit is eventually extracted from a company, the recipients pay tax on the income at either the non-savings or dividend rates. If profit is extracted as salary, the deductions will be an allowable expense for corporation tax liability, but there will be National Insurance Contributions. In contrast, paying dividends is not an allowable deduction, but the good news is that no NIC is payable. Therefore, it is generally advisable to extract as dividends up to £12,570 and take out the remaining profits as dividends. Assuming that Martin follows this tax-efficient method and that tax rates do not change until 2028, the following is the forecast of Martin’s taxes if he proceeds with the ‘one property, one company’ regime.

Buy-to-let Portfolio under ‘One property, one company’ scheme – Tax implications

The taxes and other costs are significantly higher when Martin chooses the ‘one property, one company’ scheme rather than owning the properties individually. For four years, the difference is £42,106.92. However, it can go extremely high for those with a larger portfolio who wish to hold the property under their ownership for longer.

If Martin were a higher-rate taxpayer instead, the tax implications would be as follows:

If Martin were an additional rate taxpayer and resident in the UK, the tax implications would be as follows:

Conclusion

While various property ownership structures offer potential tax benefits, each comes with its own challenges that can diminish its appeal. The “One Property, One Company” model, for example, often results in high compliance costs, as each company requires separate accounts, tax returns, and possible ATED filings, making it administratively burdensome for investors with multiple properties. Traditional corporate structures may provide some tax efficiencies, but extracting profits can lead to additional taxation through income tax and National Insurance.

Individual ownership, while simpler, lacks the asset protection and tax planning flexibility of corporate structures. Moreover, restructuring or selling properties can be complex, particularly when dealing with multiple legal entities. Ultimately, while no single structure is perfect, investors must weigh the tax advantages against the administrative burden, compliance costs, and long-term flexibility to determine the most suitable approach.