Should You Set Up a Limited Company for Buy-to-Let?

Why are so many landlords buying through a company?

Because the finance cost restriction stopped individual landlords deducting mortgage interest from rent, and companies were never inside its scope.

What the finance cost restriction does

Since 6 April 2020, income tax relief on residential property finance costs for individuals has been restricted to the basic rate. HMRC’s guidance on working out rental income confirms you are taxed on the rent first and given a 20% credit afterwards.

The same guidance says a UK resident company is not affected and keeps relief in the usual way. That one sentence is why the company market exists.

How big the shift has been

A record 66,587 buy-to-let companies were incorporated during 2025, beating the 61,517 set up in 2024. Almost all of that growth is new purchases rather than transfers of existing stock.

What is an spv and which sic code do you need?

An SPV is an ordinary limited company incorporated to hold property and trade in nothing else. Lenders price SPV mortgages more keenly than they price trading companies, so the SIC code you choose at registration decides how many of them will look at you.

The sic codes lenders expect

• 68209, other letting and operating of own or leased real estate. The usual choice for a buy-to-let SPV.
• 68100, buying and selling of own real estate. Add it only if the company will also trade.
• 68320, management of real estate on a fee or contract basis.
• 68201, renting and operating of housing association real estate.

You can list up to four codes at Companies House. Bolting on an unrelated trading code turns the SPV into a trading company in a lender’s eyes and shrinks your mortgage choice overnight.

What registration costs

Companies House charges £100 to incorporate online and £124 by post, with online registrations usually completed inside 24 hours. A formation agent that also sets the share structure and registers you for corporation tax charges roughly £200 to £500.

How much corporation tax would the company pay?

19% on profits up to £50,000, 25% above £250,000, and an effective 26.5% on every pound in between. Set against income tax at 40% or 45%, that gap is the whole attraction.

The small profits rate and marginal relief

The corporation tax rates published by HMRC set the small profits rate at 19% for profits of £50,000 or less and the main rate at 25% above £250,000. Both figures have applied since 1 April 2023.

Profits between the two limits qualify for marginal relief, which tapers the bill so the rate climbs gradually. The practical effect is a 26.5% marginal rate on that middle slice.

Why several spvs cost you more, not less

Both limits are divided by the number of associated companies, so HMRC’s example of a company with three associates has a lower limit of £12,500 and an upper limit of £62,500. Split a portfolio across four SPVs to keep things tidy and you push each one onto the main rate far sooner.

The family letting trap

A close company investing in land keeps the small profits rate only where that land is let commercially to people not connected to it. Let a flat to your son, your father-in-law or your own trading company and the SPV becomes a close investment-holding company.

That costs it the 19% rate and marginal relief together, so every pound of profit is taxed at 25%.

How does the tax compare at two income levels?

At £45,000 of other income with one modestly geared flat, the company saves £937 a year and the running costs swallow it. At £50,000 with four geared properties it saves £2,695 even after taking every penny out, and £9,176 if the profit stays in.

Personal ownership against a company, side by side

Landlord A earns £45,000 and lets one flat for £14,400, paying £6,000 of mortgage interest and £2,400 of other costs. Landlord B earns £50,000 and lets four properties for £54,000, with £22,000 of interest and £9,000 of costs.

Both are English taxpayers on the 2026 to 2027 rates, and both company columns assume the whole profit is drawn as a dividend. That is the worst case for the company.

Landlord A gains £937 and hands most of it to an accountant. Landlord B is the case the company market is built on, and the gap widens with every extra pound of interest.

What changes in april 2027

Income tax rates on property income for individuals rise by two percentage points from April 2027, to 22%, 42% and 47%. That was announced at the Autumn Budget 2025, is not in force as at September 2026, and leaves corporation tax untouched.

Every gap in the table above widens by roughly those two points once it lands.

What does it cost to get the money back out?

Corporation tax is only the first layer. Draw the profit as a dividend and the combined effective rate reaches about 48% for a higher rate taxpayer, which is worse than the 40% an unmortgaged individual landlord pays on the same rent.

Dividend tax on top of corporation tax

Dividend rates rose in April 2026. The rates published on gov.uk now stand at 10.75% for basic rate, 35.75% for higher rate and 39.35% for additional rate taxpayers, with the dividend allowance held at £500.

The company pays corporation tax on the profit first. You pay dividend tax on whatever is left.

The combined effective rate

• 19% corporation tax then basic rate dividends: 27.7% combined.
• 19% corporation tax then higher rate dividends: 48.0% combined.
• 25% corporation tax then higher rate dividends: 51.8% combined.
• 25% corporation tax then additional rate dividends: 54.5% combined.

Those rates only bite on money you withdraw. Profit left inside to fund the next deposit is taxed once, which is why the structure suits landlords still buying.

Salary and directors’ loans

A small director’s salary is deductible for the company and can sit below the National Insurance threshold, which helps a landlord with no other employment. Repaying a directors’ loan is tax free, so the deposit money you lent the company comes back without a dividend charge.

What does it cost to move an existing portfolio in?

A transfer is a sale at market value even though no money changes hands, so you pay capital gains tax and the company pays stamp duty. On a £750,000 portfolio the upfront bill runs to about £165,000 before you have saved a penny.

Capital gains tax on a sale you never made

You and your company are connected persons, so HMRC substitutes market value for the price you agreed with yourself. Residential gains are taxed at 18% within the basic rate band and 24% above it, with a £3,000 annual exempt amount.

There is no buyer’s cash to settle it with, and the tax falls due whether or not the company has refinanced enough to hand you anything.

Stamp duty at the surcharge rate

The company pays residential rates plus the 5% surcharge for additional dwellings, and HMRC’s guidance for corporate bodies adds a flat 17% charge on any single dwelling costing more than £500,000. Property rental business relief takes a genuine letting SPV out of the 17% charge, though never out of the surcharge.

Transfers of several properties to the same company on the same day are linked, so the rate is worked out on the combined figure. Multiple dwellings relief was withdrawn in June 2024 and no longer softens that.

Early repayment charges and refinancing

Existing mortgages are redeemed rather than transferred, so early repayment charges of 1% to 5% apply unless every loan is outside its tie-in period. The company then needs fresh lending at arrangement fees of 1.5% to 3%.

Against annual savings of roughly £9,000, that portfolio takes about 18 years to break even. Any portfolio landlord policy has to be reissued in the company’s name at the same time, which is a renewal date most people forget in the middle of a restructure.

Can incorporation relief wipe out the capital gains bill?

Rarely. Incorporation relief under section 162 defers the gain instead of taxing it, but only where your letting activity is a real business transferred as a going concern, and passive lettings run by an agent do not qualify.

The three conditions

• The business transfers as a going concern, active and operating rather than an inert collection of assets.
• All of the business assets go across, cash and bank deposits aside.
• The consideration is wholly or partly shares issued to you.

Meet all three and the gain is rolled into the base cost of your shares rather than taxed today. Sell those shares later and it comes back.

Why most landlords fail the business test

The test looks at activity, not portfolio size. The benchmark advisers quote from the Ramsay case is around 20 hours a week of genuine personal work, which rules out anyone whose agent does everything.

HMRC’s Capital Gains Manual also confirms that for transfers from 6 April 2026 the relief must be claimed rather than applying automatically. Miss the claim and you lose the deferral outright.

Stamp duty is a separate question

Incorporation relief does nothing at all for stamp duty. The only route around the SDLT charge is the partnership rule, which needs a genuine partnership that has been trading and filing as one for years rather than a paper arrangement made weeks before the transfer.

HMRC challenges these regularly and wins often.

Will a lender give your company a mortgage?

Yes, and the SPV market is now big enough to be competitive. Expect a rate around 0.3 to 0.8 percentage points above the equivalent personal deal and a larger arrangement fee.

Rates, fees and deposits

Most SPV lenders want a deposit of 20% to 25%, so you borrow at 75% to 80% loan to value. Almost every one of them makes landlord buildings insurance for the full rebuild value a condition of the loan.

Fewer lenders write SPV business than personal buy-to-let, so a broker who knows the sector earns their fee here.

Personal guarantees undo the liability shield

Nearly every SPV lender takes a personal guarantee from each director, often for the full loan. Limited liability protects you from a tenant’s claim, not from your own mortgage lender.

Keep that in mind when the pitch for incorporating leans on asset protection. A landlord policy with legal expenses cover does more practical protecting than the company wrapper does.

What does a property company cost to run each year?

Budget £700 to £2,500 a year once accountancy, filings and a bank account are added up. That is the number your tax saving has to clear before any of this makes sense.

The filings you cannot skip

• Annual accounts to Companies House, due nine months after the year end.
• A CT600 company tax return to HMRC, due twelve months after the year end.
• Corporation tax paid nine months and one day after the year end.
• A confirmation statement every twelve months, at £50 filed online.
• Your own Self Assessment return if you draw dividends or a salary.

Companies House late filing penalties start at £150 and reach £1,500 once accounts are more than six months overdue. Directors carry that personally even when an accountant does the work.

What an accountant charges

A single-property SPV with clean records is usually £600 to £900 a year, rising to £1,200 to £2,500 for four or five properties with a live directors’ loan account. Add up to £180 for a business bank account and £100 to £300 for payroll.

None of it scales down for a landlord with one flat.

Does company ownership change your landlord insurance?

Yes, in two ways that catch landlords out at claim stage. The policy has to be in the company’s name, and Flood Re will not stand behind a company-owned property.

The policy must name the company

The insured has to be whoever owns the building, so a landlord insurance policy bought in your own name is worth very little once the title sits with the SPV. Insurable interest is the test an insurer applies before it pays.

Check the company name on the schedule matches Companies House exactly. Everything a landlord policy normally covers still applies, but the payee changes.

Flood re excludes company-owned property

Flood Re only reinsures policies where the home is held by individuals or on trust. Its eligibility criteria list company houses and flats as ineligible, along with blocks of more than three flats.

In a flood risk postcode that can be the difference between a £400 premium and a £2,000 one. Get a quote in the company’s name before you transfer, not afterwards.

What else changes on the schedule

Rent guarantee and loss of rent cover work the same way, but the money is paid to the company rather than to you.

• HMO insurance where the SPV holds a shared house with three or more tenants.
• A block of flats policy where the company owns the freehold as well as the units.
• Multi-property cover once the company holds three or more properties on one renewal date.
• Unoccupied property cover for any void running past the 30 to 45 day limit in the wording.
• Holiday let insurance if the company runs short stays rather than assured tenancies.

If the company also carries out its own maintenance or manages units for other owners, that work sits outside the landlord policy and needs public liability cover for a limited company.

Who should incorporate and who should not?

Incorporate if you are a higher rate taxpayer with heavy borrowing, still buying, and able to leave profit in the company. Stay personal if you are a basic rate taxpayer, lightly geared, or likely to sell within five years.

Where the answer is clear

The hybrid most landlords end up with

Keep what you already own in your own name and buy everything new through the SPV. You get the full interest deduction on new borrowing without paying capital gains tax and stamp duty on the old stock.

It does mean two sets of records and two insurance arrangements, which most portfolio landlords decide is cheaper than a six-figure restructuring bill.