Guide · 11 min read
The corporation tax position, Section 24, dividend extraction, mortgage pricing premium and IHT angle, the full limited-company-versus-personal decision for landlords building at scale.
Written by Matt Lenzie · Published 10 June 2026
Advice from
Matt Lenzie · 25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
A higher-rate taxpayer with £30,000 of rental profit before mortgage interest and £15,000 of interest pays £9,000 of income tax under Section 24, as of June 2026. That is 60% of the £15,000 they actually made. The same property in a limited company pays £2,850 of corporation tax on the same real profit, 19%. Run across ten properties instead of one, the gap is the difference between a portfolio that compounds and one that stands still. And yet the company is not always the right answer: the money has to come out one day, the mortgages cost more, and the company itself costs £1,000 to £2,500 a year to keep alive.
This guide works the whole decision at portfolio scale: the tax mechanics on both sides with the 2025/26 numbers, the extraction problem, the mortgage pricing and leverage trade, inheritance tax, and the honest admin costs. Our limited company vs personal calculator runs your own figures through the same framework.
The decision starts with one asymmetry. Since April 2020, Section 24 of the Finance (No. 2) Act 2015 has barred individual landlords from deducting finance costs from rental income. Tax is charged on the profit before interest, and a basic-rate credit of 20% of the interest is given back. The mechanics, and why they compound viciously across a leveraged portfolio, are covered in our Section 24 guide. A limited company is simply outside the regime: interest is a normal deductible business expense under the loan relationship rules, exactly as it was for individuals before 2017.
The consequence is that the comparison is not "40% versus 19%". It is "40% on a profit figure that ignores your biggest cost, versus 19% to 25% on your real profit". The more leveraged the portfolio, the wider that gap becomes, which is why the company structure is fundamentally a leveraged-portfolio-builder's tool rather than a universal tax wheeze.
The table below takes a higher-rate (40%) taxpayer, assumes mortgage interest equal to half of the rental profit before finance costs, and compares the annual tax under each structure for the 2025/26 year. Company profits at these levels fall below the £50,000 small profits threshold, so corporation tax is 19% (it rises through marginal relief to 25% between £50,000 and £250,000 of profit, with thresholds split between associated companies).
| Profit before interest | Mortgage interest | Real profit | Personal tax (Section 24) | Company tax (19%) | Annual saving retained in company |
|---|---|---|---|---|---|
| £12,000 | £6,000 | £6,000 | £3,600 | £1,140 | £2,460 |
| £30,000 | £15,000 | £15,000 | £9,000 | £2,850 | £6,150 |
| £80,000 | £40,000 | £40,000 | £24,000 | £7,600 | £16,400 |
The personal column is 40% of the pre-interest profit minus the 20% interest credit, an effective 60% of real profit at every scale in this gearing scenario. Two caveats keep the table honest. First, at the £80,000 level the grossed-up rental income will often push a salaried higher-rate taxpayer into the 45% band and past the £100,000 personal allowance taper, making the personal position worse than shown. Second, a basic-rate taxpayer with no other income would pay £1,200, £3,000 and (partly at higher rate) more respectively, dramatically narrowing the gap, which is precisely why the personal route survives for basic-rate landlords.
Corporation tax is not the end of the company computation, because the company's cash is not your cash. Getting it out is a second tax event. Dividends above the £500 allowance are taxed at 8.75% for basic-rate, 33.75% for higher-rate and 39.35% for additional-rate taxpayers in 2025/26 per HMRC. A higher-rate landlord who extracts everything pays 19% inside the company and then 33.75% on the remainder: a combined effective rate of roughly 46.3% on real profit.
Take the £30,000 row above. The company retains £12,150 after corporation tax. Extracted in full as a dividend, the director pays a further £3,932, leaving £8,218 in hand against £6,000 in hand under personal ownership. Even the full-extraction case wins here, but only because heavy gearing makes Section 24 so punishing; cut the interest to £5,000 and the personal route pulls ahead for an income-spender. Three extraction reliefs shift the balance further toward the company. Repayment of a director's loan account is tax-free, so deposits lent into the company come back out untaxed. A small salary can use spare personal allowance. And a spouse holding a different share class can absorb dividends at basic rate.
The clean conclusion: the company's advantage is largest for the landlord who leaves profits inside the company and recycles them into the next deposit, paying 19% now and deferring everything else. The landlord who needs every pound of rent to live on is paying two layers of tax to avoid one, and at modest gearing may be better off personally. Which one you are matters more than any other input.
Limited company buy-to-let mortgages price higher. As of June 2026 the premium over the equivalent personal-name product is typically 0.2% to 0.5%, with specialist lenders such as Paragon, Fleet Mortgages and Landbay pricing SPV business closest to parity and high-street-owned brands charging the wider end. On a £200,000 interest-only loan, 0.35% is £700 a year, fully deductible in the company, so the after-tax drag is around £567.
The compensation is leverage, and it is mechanical. Lenders test buy-to-let loans with an interest coverage ratio (ICR), the required margin of rent over stressed interest. Because the lender assumes tax at 40% on a higher-rate personal borrower's rent, the ICR is set at 145%. A company pays 19% to 25%, so the ICR drops to 125%. Same property, same rent, different maximum loan:
| Structure | ICR | Stress rate | Rent £1,500 pcm | Maximum loan |
|---|---|---|---|---|
| Personal, higher-rate taxpayer | 145% | 5.5% | £18,000 pa | £225,705 |
| Limited company | 125% | 5.5% | £18,000 pa | £261,818 |
That is £36,113 of additional debt on identical rent, around 16% more, which on a £280,000 valuation is the difference between a 75% LTV (loan to value) loan actually being achievable and the rent capping you at 69%. For a portfolio builder the ICR advantage is frequently worth more than the rate premium costs, because it is the binding constraint on how fast equity recycles. The same logic runs through portfolio-level facilities, where the aggregate book is stressed on the same basis.
Personally held property passes on death at market value into the estate, with inheritance tax (IHT) at 40% above the nil-rate bands, and a rental business attracts no business property relief. Shares in a property company are also fully exposed to IHT, but shares are divisible and controllable in a way bricks are not: they can be gifted in tranches as potentially exempt transfers, voting and economic rights can be separated, and growth shares or freezer shares can cap the value in the parents' estate while future growth accrues to the children's class. A family investment company takes the same machinery further, with parents holding voting control while children hold the capital growth, and it has become the default succession wrapper for larger landed portfolios since the 2017 trust-charge changes made discretionary trusts expensive to feed. None of this is achievable with a personally held terraced house in Salford. For landlords in their fifties and sixties building something intended to outlive them, succession flexibility is often the decisive argument, ahead of income tax.
Every comparison site mentions "extra admin" and almost none prices it. As of June 2026, for a single-SPV landlord with clean affairs: statutory accounts and CT600 from a competent accountant, £750 to £1,500 a year; the Companies House confirmation statement, £34; bookkeeping software the lender will expect to see at refinance, £150 to £300; and an ATED return where any single dwelling in the company is worth more than £500,000, even when the rental relief reduces the charge to nil, typically another £150 to £300 in accountancy time. Call it £1,000 to £2,500 all-in. Set against the £2,460 saving on the £12,000 row of the table above, a single modest property in a company is close to a break-even exercise. Set against £16,400 on the £80,000 row, it is noise. The admin line is a fixed cost and the tax saving scales with the portfolio, which is the structural reason the company answer strengthens with size.
One pattern we see repeatedly at the desk: the answer is rarely all-or-nothing. Plenty of professional landlords run legacy low-geared properties personally, where Section 24 barely registers, and route every new leveraged purchase through the company. The two books are then financed separately, with the limited company buy-to-let side carrying the growth.
For a higher-rate taxpayer who intends to reinvest the rental profits, a limited company is usually the better structure as of June 2026: mortgage interest is fully deductible against corporation tax at 19% to 25%, against a personal regime where Section 24 restricts interest relief to a 20% credit. For a basic-rate taxpayer, or a landlord who needs to spend the rental income each year, personal ownership often nets more cash because dividend tax on extraction (8.75% to 39.35%) erodes the company advantage.
Section 24 of the Finance (No. 2) Act 2015, fully in force since April 2020, stops individual landlords deducting mortgage interest from rental income. Tax is calculated on rental profit before finance costs, then a credit of 20% of the interest is given. A higher-rate taxpayer with £30,000 of rental profit before interest and £15,000 of interest pays £9,000 of tax on a real profit of £15,000, an effective rate of 60%. Limited companies are outside Section 24 entirely and deduct interest in full.
As of June 2026 limited company buy-to-let rates typically price 0.2% to 0.5% above the equivalent personal-name product, and arrangement fees are often higher. The offset is leverage: lenders stress company applications at a 125% interest coverage ratio rather than the 145% applied to higher-rate personal borrowers, so on £18,000 of annual rent at a 5.5% stress rate the maximum loan rises from roughly £225,700 personally to £261,800 in a company, about 16% more debt on the same property.
Budget £1,000 to £2,500 per year as of June 2026: accountancy for statutory accounts and the CT600 corporation tax return (£750 to £1,500 for a small SPV), the £34 Companies House confirmation statement fee, bookkeeping software, and an ATED return if the company holds any dwelling valued above £500,000, even where the rental-business relief reduces the ATED charge to nil. On a single low-yield property these costs can consume the entire tax advantage, which is why the company case strengthens with portfolio size.
Up to a point. Repayment of a director's loan account is tax-free, so where the deposits were lent to the company by the director, rental profits can be drawn back tax-free until the loan is repaid. A salary within the personal allowance can also be efficient. Beyond that, extraction is by dividend, taxed at 8.75% (basic), 33.75% (higher) or 39.35% (additional) above the £500 dividend allowance in the 2025/26 tax year.
Not without running the incorporation maths. Transferring existing properties is a disposal for capital gains tax (18% or 24% on residential gains in 2025/26) and a purchase for stamp duty including the 5% surcharge, plus a full refinance of every mortgage. Section 162 incorporation relief and partnership routes can shelter some of it for genuine property businesses. The arithmetic is completely different from the new-purchase decision, and is covered in our guide to transferring property into a limited company.
Enquiry
Initial consultations are always fee-free. Same-business-day callback from a former Bank of Scotland and Lloyds Banking Group banker, not a chatbot or a paid lead form.