Is it more tax efficient to own buy-to-let property through a limited company in 2026?

Full answer

The tax efficiency of a limited company vs personal ownership for buy-to-let depends on individual tax rates, mortgage debt, investment horizon and exit strategy. Personal ownership (individual) -- Rental income taxed at marginal rate: 20%, 40% or 45% -- Mortgage interest: only a 20% basic-rate tax credit (Section 24 ITTOIA 2005) -- higher and additional-rate taxpayers pay tax on turnover rather than profit if heavily mortgaged -- CGT on sale: 18% (basic) or 24% (higher/additional) -- annual exempt amount of GBP 3,000 -- No separate entity: simpler administration Limited company -- Rental income taxed at Corporation Tax rate: 19% (profits below GBP 50,000) up to 25% (profits above GBP 250,000) -- Mortgage interest: fully deductible as a business expense -- S24 does not apply to companies -- Company CGT on property disposal: taxed as part of the company's chargeable gains at CT rates (19-25%), not individual CGT rates -- no annual exempt amount -- Profit extraction adds personal tax: dividends taxed at 8.75% / 33.75% / 39.35% after GBP 500 allowance; salary subject to PAYE + NI Mortgage rate differential Buy-to-let mortgages for limited companies typically carry a 0.5-1.5% higher interest rate than personally held mortgages. On a GBP 200,000 mortgage at 1% higher: GBP 2,000/year extra interest cost. Break-even analysis (simplified) Higher-rate individual (40%): GBP 10,000 rent, GBP 6,000 mortgage interest. Net profit = GBP 4,000. Tax on full GBP 10,000 = GBP 4,000 minus GBP 1,200 credit = GBP 2,800. Effective rate: 70% of profit. Company (25% CT): same figures. Taxable profit = GBP 4,000. CT = GBP 1,000. Retained in company: GBP 3,000. If extracted as dividends at 33.75%: GBP 3,000 x 33.75% = GBP 1,012 more tax. Total: GBP 2,012 tax. Effective rate: 50% of profit. Conclusion: the company wins in this example if the owner is a higher-rate taxpayer and plans to reinvest profits rather than extract them immediately. Transfer of existing properties to a company Transferring personally-held properties into a company triggers CGT and SDLT on the transfer (as though sold at market value). The acquisition cost of doing so can outweigh the ongoing tax savings unless the property has very low built-in gains. Most advisers recommend starting a company structure for new acquisitions rather than transferring existing ones.

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