Buy-to-Let: Ltd Company vs Personal Ownership Tax Comparison 2026

The question of whether to hold buy-to-let property personally or through a limited company is one of the most debated topics in UK property investment. Section 24 of the Finance (No. 2) Act 2015 fundamentally changed the maths by restricting individual landlords' mortgage interest relief to the basic rate of income tax. For higher and additional rate taxpayers, the impact is significant. This guide sets out the key differences and includes worked examples using 2026/27 figures.

How Section 24 Works for Individual Landlords

Before Section 24 was phased in, landlords could deduct mortgage interest in full from rental income before calculating tax. Now, individuals can only claim a tax credit equal to 20% of the mortgage interest paid, regardless of their marginal rate.

For a basic rate (20%) taxpayer, this makes no practical difference. For a higher rate (40%) taxpayer, however, the restriction costs real money. The interest is still counted as income -- pushing you further up the tax bands -- and you only receive a 20p credit for every GBP 1 of interest paid, rather than 40p.

Worked Example 1: Higher Rate Individual Landlord

Assume: GBP 18,000 annual rental income, GBP 8,000 mortgage interest, GBP 2,000 other allowable expenses. The landlord already earns GBP 55,000 from employment.

• Taxable rental profit: GBP 18,000 minus GBP 2,000 = GBP 16,000 (mortgage interest is NOT deducted here)
• Tax at 40% on GBP 16,000 = GBP 6,400
• Less 20% tax credit on GBP 8,000 interest = GBP 1,600
• Net tax on rental income: GBP 4,800
• Economic profit (rent minus all costs including interest): GBP 18,000 - GBP 8,000 - GBP 2,000 = GBP 8,000
• Effective tax rate on economic profit: 60%

This is a painful position. The landlord is paying nearly two-thirds of their economic profit in tax.

Corporation Tax for Limited Company Landlords

A limited company holding buy-to-let property is taxed under corporation tax rules, not income tax. Mortgage interest remains fully deductible as a business expense. For 2026/27, the corporation tax rate is 19% on profits up to GBP 50,000, rising to 25% on profits over GBP 250,000, with marginal relief in between.

Worked Example 2: Same Property in a Ltd Company

Same figures: GBP 18,000 rent, GBP 8,000 interest, GBP 2,000 expenses.

• Taxable profit: GBP 18,000 - GBP 8,000 - GBP 2,000 = GBP 8,000
• Corporation tax at 19%: GBP 1,520
• Retained profit after tax: GBP 6,480

The tax bill is dramatically lower within the company. The effective rate is 19%, compared to roughly 60% for the higher rate individual above.

However, this comparison is incomplete. To use the money personally, the director must extract it -- either as salary or dividends -- and that extraction triggers further tax.

Extracting Profits: The Full Picture

If the director takes the GBP 6,480 as a dividend:

• Dividend allowance: GBP 500 (tax-free)
• Remaining GBP 5,980 taxed at the higher rate dividend rate of 35.75% = GBP 2,138
• Total tax paid (corp tax + dividend tax): GBP 1,520 + GBP 2,138 = GBP 3,658
• Effective rate: 45.7%

This is still better than the individual's 60%, though the gap narrows. For a basic rate taxpayer who could pay dividends at 10.75%, the comparison shifts further -- the individual rate and the company rate converge.

When Does a Limited Company Make Sense?

The company structure tends to make the most financial sense when:

1. You are a higher or additional rate taxpayer with meaningful mortgage debt
2. You do not need to extract all profit immediately (reinvesting into the company avoids dividend tax)
3. You are building a portfolio of properties and can spread setup and accounting costs
4. You intend to pass the portfolio on to family members (company shares can be gifted or transferred)

The structure tends to be less advantageous when:

• You have low or no mortgage -- the Section 24 restriction does not bite if there is no interest to restrict
• You need all the income immediately, making double taxation unavoidable
• The portfolio is small and accountancy fees (typically GBP 1,000 to GBP 2,500 per year for a property company) erode the benefit

Transfer Costs Are Real

Transferring an existing personally owned property into a company is treated as a disposal for both SDLT and CGT purposes. You will pay SDLT on the market value (including the 3% surcharge), and CGT on any gain since purchase. For a property with significant appreciation, this can make the switch prohibitively expensive unless you have carried forward losses or BADR applies (it generally does not for residential BTL).

Many landlords who would benefit from the company structure do so for new purchases only, leaving existing personally owned stock in place.

Plan Before You Buy

Whether you are buying your first buy-to-let or expanding a portfolio, the ownership structure decision should be made before you complete -- not after. Use the CalcHub income tax calculator to model your marginal rate and the impact on rental profits:

Income Tax Calculator -- CalcHub