Are you thinking about investing in properties? Or, are you already a landlord who is considering changing how you operate?
The chances are you have heard of the popular method of buying to let as a business model, which has gained a ton of traction in more recent years. In this guide, learn why this company structure is gaining ground.
The Section 24 changes
There were some significant Section 24 changes between 2017 and 2020. Prior to that, landlords were able to deduct 100% of the cost of their mortgage interest from rental income to calculate profit for tax purposes. However, the new Section 24 rules meant that this was no longer possible, and instead a flat 20% tax credit is applied.
This massively affected taxable income and hit high-earning landlords the most (those paying 40-45% in personal income tax).
As a result of this, many landlords chose the alternative method of operating under a limited company, as Section 24 does not apply to these and mortgage interest can be deducted as a business expense. This can reduce the amount of tax paid.
It is important to bear in mind though that when you hold tax in a limited company, you are subject to corporation tax and dividend tax, and there may be more administrative costs in running a limited company.
Transferring property into a limited company
If you are switching to operating under a limited company as a landlord, bear in mind that you are selling the property from your personal name to the company, which is a separate legal structure. As such, you are subject to stamp duty rules.
Naturally, being as cost effective as you can, in light of this, is vital. So, when it comes to the mortgage, getting the best deal possible will make a significant financial impact. Speaking to Commercial Trust mortgage specialists can make an immense difference, as you’ll get access to limited company mortgage lenders from across the UK market, and have all the stress and hassle of applying for a mortgage taken off your shoulders.
It makes inheritance tax planning easier
Many landlords, especially those with big portfolios and high incomes, are concerned with what happens to their wealth and assets once they pass. Most landlords want to be reassured that their dependents get more power and end up with as much of their wealth as possible.
Buying to let under a limited company has become more popular because it means they are gaining some control over inheritance planning. Specifically, it means landlords can gift shares to their loved ones while still remaining in control as the director of the company.
The additional 2% on personal income tax
Further fuel was added to the switch to incorporation, when Chancellor of the Exchequer Rachel Reeves announced that from April 2027, landlords holding property in personal name would be subject to an extra 2% on their personal income tax rate from property income.
By contrast, limited company investors will pay an additional 2% on the income tax on their dividends, which has a smaller financial impact by comparison. This change comes in from April 2026.
Is it right for you?
Are you a landlord wanting to expand your portfolio? Maybe your operations as a landlord have been hit by Section 24.
If so, you may find operating under a limited company is right for you. It may be more tax-efficient and positively impact the profitability of your property business, whilst also making inheritance planning easier.
If you are a higher-bracket taxpayer, it is highly likely to be worth exploring. However, if you are a landlord who only manages one or two properties (and you are not in the higher rate tax bracket), then sticking to owning your properties individually may still be a cost effective path for you. Getting professional tax advice is the best thing you can do to be clear on your position now and in the future.
Read more:
Buy to let as a business model: Why company structures are gaining ground
