Why Landlords Use Limited Companies
The main reasons landlords incorporate — and the key questions to ask first.
The number of landlords using limited company structures has grown significantly since the introduction of the mortgage interest restriction (Section 24) in 2017. For higher-rate taxpayers with mortgaged properties, the tax advantages of a limited company can be substantial. But a limited company is not right for every landlord — and the decision to incorporate is not easily reversed.
This handbook provides a plain English guide to the key considerations: the tax comparison, the costs, the mortgage market, the ongoing obligations and the circumstances in which a limited company is — and is not — the right choice.
The main reasons landlords incorporate
Most landlords who use a limited company structure do so for one or more of the following reasons:
- Tax efficiency: corporation tax rates are lower than higher-rate income tax
- Mortgage interest: companies can deduct mortgage interest in full (no Section 24 restriction)
- Profit retention: profits retained in the company are taxed at corporation tax rates, not income tax rates
- Succession planning: shares can be transferred to family members more easily than property
- Liability protection: limited liability protects personal assets (subject to personal guarantees)
- Pension contributions: director pension contributions are a tax-efficient way to extract profits
The key questions to ask first
Before deciding whether to incorporate, ask yourself: Am I a higher-rate or additional-rate taxpayer? Do I have mortgaged properties? Do I intend to grow my portfolio? Do I need to extract all rental profits as income, or can I retain some in the company? What are the one-off costs of incorporation or transfer?
A limited company is not automatically more tax-efficient than personal ownership. For basic-rate taxpayers with small portfolios, the additional costs and complexity of a company may outweigh the tax savings. Always take professional advice before incorporating.
When a limited company is not right
A limited company is unlikely to be the right choice if: you are a basic-rate taxpayer, you have no mortgage on your properties, you need to extract all rental income as personal income, you have a small portfolio that you do not intend to grow, or you are planning to sell your properties in the near future (capital gains tax on disposal from a company is more complex).
The decision to use a limited company should be made with the help of a specialist property tax accountant. The tax rules are complex and change frequently. Generic advice from a general accountant may not reflect the latest position.