Limited company vs personal name: which is right for your portfolio?

The Section 24 problem for personal name landlords

Section 24 of the Finance Act 2015 (now fully phased in) changed the tax treatment of mortgage interest for residential landlords holding property in their personal name.

Before Section 24, landlords could deduct the full mortgage interest from their rental income before calculating their taxable profit. A higher-rate taxpayer paying £6,000/year in mortgage interest on a property earning £10,000/year in rent would pay tax on £4,000 profit.

After Section 24, the full rental income (£10,000) is added to taxable income. The landlord receives a tax credit of 20% of the mortgage interest (£1,200). The effective tax treatment for a higher-rate (40%) taxpayer: - Tax on £10,000 rental income at 40%: £4,000 - Less 20% tax credit: -£1,200 - Net tax bill: £2,800

Under the old system the same landlord would have paid 40% on £4,000 profit = £1,600. Section 24 has increased their tax bill by £1,200 per year on this single property.

For highly leveraged portfolios with thin cashflow margins, Section 24 can turn a cashflow-positive portfolio into one that loses money on an after-tax basis despite positive pre-tax cashflow. This is not hypothetical - many landlords have sold properties or transferred to limited companies as a result.

The limited company tax structure

A limited company (most commonly set up as a Special Purpose Vehicle, or SPV, specifically for property) is not subject to Section 24. Mortgage interest remains fully deductible as a business expense within a company.

The company pays corporation tax on its net profits. For most small property SPVs, the corporation tax rate is 19% on profits up to £50,000 (the "small profits rate"). Above £50,000 and the rate tapers up to 25% for profits over £250,000.

Continuing the example: a company owning the same property earning £10,000 rent and paying £6,000 in mortgage interest: - Net profit: £10,000 - £6,000 - £2,000 (other expenses) = £2,000 - Corporation tax at 19%: £380 - Profit retained in company: £1,620

Compare this to the personal name landlord paying £2,800 in tax on the same property. The tax saving within the company is clear.

However, the £1,620 sitting in the company is not the same as £1,620 in your personal bank account. To access it, you need to pay yourself a salary (deductible from the company, taxed as income) or take dividends (taxed at dividend rates after a small annual dividend allowance).

Dividend extraction and the true comparison

Extracting profits from a limited company creates a second layer of tax.

Dividend income is taxed at: - 8.75% for basic rate taxpayers (above the £500/year dividend allowance) - 33.75% for higher rate taxpayers - 39.35% for additional rate taxpayers

On £1,620 of company profit, the company has already paid 19% corporation tax. If you extract the remaining profit as a dividend and you are a higher-rate taxpayer: - Dividend received: £1,620 (£2,000 profit, minus 19% CT = £1,620) - Dividend tax at 33.75%: £547 - Net in your pocket: £1,073

For a personal name landlord who is a basic rate taxpayer: - Tax on £4,000 profit at 20%: £800 - Net income from the property: £3,200

In this case, the personal name basic rate taxpayer is actually better off. The limited company structure only wins once you are a higher-rate taxpayer and the Section 24 impact is significant.

This is why the decision requires a proper calculation for your specific situation. Variables include: your personal income (which determines your marginal rate), the level of mortgage debt on each property, how much profit you need to extract versus reinvest, and the number of properties in your portfolio.

Capital gains tax: personal vs limited company

The tax treatment of capital gains on disposal differs between personal name and limited company ownership.

Personal name: - Residential property CGT rates: 18% for basic rate taxpayers, 24% for higher rate taxpayers (from April 2024) - Annual CGT exemption: £3,000 (reduced from £12,300 in 2023/24) - Reporting: CGT on UK residential property must be reported to HMRC and paid within 60 days of completion - Private Residence Relief: does not apply to investment properties (only your main home)

Limited company: - No separate CGT - gains are taxed as part of corporation tax at 19-25% - No annual exemption - However: companies can use indexation allowance (frozen since 2017) and other reliefs

For a property bought for £130,000 and sold for £200,000 (£70,000 gain): - Higher-rate personal name: £70,000 x 24% = £16,800 CGT - Limited company: £70,000 x 19% = £13,300 corporation tax (then further tax on dividend extraction)

The tax on disposal also depends on how you extract the money. Winding up a company and distributing assets can have different tax treatment from regular dividends. This is complex territory and specialist advice is essential.

Mortgage availability and rate premium

One of the practical disadvantages of the limited company route is the mortgage market.

The BTL mortgage market for personal name buyers is mature and competitive, with major banks, building societies, and specialist lenders all competing. Limited company BTL is a more specialist market with fewer active lenders.

As of 2026, the major banks (Nationwide, Barclays, Santander) do not offer limited company BTL mortgages for standard properties. The market is served by specialist lenders including Paragon, Foundation Home Loans, Keystone, Precise, Landbay, and several others.

The rate premium for limited company mortgages over equivalent personal name mortgages is typically 0.2-0.6 percentage points. On a £100,000 mortgage, 0.4% extra = £400/year in additional interest costs. Over a 5-year fixed term, that is £2,000 extra interest.

This rate premium partially offsets the tax saving from the limited company structure. Include it in any comparison calculation.

Additionally, the mortgage underwriting for limited companies is more complex, taking longer and requiring more documentation. A first-time SPV buyer will face more scrutiny than an established limited company with several years of accounts.

Practical considerations and the decision

Beyond the pure tax calculation, there are practical factors:

SDLT on transfer: If you own properties in personal name and want to transfer them to a limited company, you pay SDLT on the transfer at market value as if buying them fresh. On a £150,000 property, that is £8,000. Transfers are generally not worth it unless the tax savings over many years outweigh the immediate SDLT cost.

Running costs: A limited company requires annual accounts prepared by an accountant (typically £500-£1,500/year depending on complexity), annual confirmation statement filing at Companies House, and more rigorous bookkeeping. These costs add up across a portfolio.

Partnerships and joint ownership: If you are buying with a partner, a limited company can simplify the ownership structure and allow flexible profit allocation through different share classes. This can be a significant advantage.

Long-term portfolio building: If your goal is to build a substantial portfolio over 10-20 years, the limited company structure allows profits to compound within the company at a lower tax rate than personal name, accelerating portfolio growth. The tax is paid when you extract the money, not as it accumulates.

The consistent guidance from experienced property accountants is: start in a limited company from the beginning if you are a higher-rate taxpayer planning to build more than 2-3 properties. The hassle of restructuring later is greater than the hassle of setting up correctly at the start.

That said, this guide is educational. Your specific circumstances require specific advice. Speak to a qualified property accountant before making this decision.

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