Corporation Tax

Corporation Tax is the tax that limited companies pay on their taxable profits. For a property investment company, taxable profits include: net rental income (after all allowable deductions including mortgage interest) and capital gains on property sales (though the annual exempt amount is not available to companies).

From April 2023, the UK corporation tax rate structure changed. Companies with profits up to £50,000 pay 19% (the small profits rate). Companies with profits over £250,000 pay 25% (the main rate). Between £50,000 and £250,000, marginal relief applies, creating an effective rate that tapers from 19% to 25%.

For a standard buy-to-let portfolio held in a limited company, most investors will be in the small profits rate bracket. A company with £40,000 annual net rental profit pays £7,600 in corporation tax (19%), leaving £32,400 that can be retained in the company or extracted as dividends.

When comparing personal name versus limited company structures, the effective tax rate is not the only consideration. Income extraction from the company (salary + dividends) creates additional personal tax liability. The key advantage is timing: profits retained in the company are taxed at corporation tax rates, not income tax rates, allowing reinvestment at a lower initial tax cost.

Capital gains within a limited company are also subject to corporation tax rather than Capital Gains Tax. The CGT annual exempt amount (£3,000 in 2025/26) is not available to companies, and indexation allowance was frozen in 2017. For long-term holds with significant capital appreciation, advice from a specialist tax adviser is essential.