Until 2015, the answer to this question was fairly straightforward: it was not worth the time and effort for all but the largest landlords to set up companies for their buy to let businesses. It was cheaper and easier to own them directly as an individual. Consequently, very few landlords used limited companies for their property investments.
However, the tax treatment of borrowing costs for landlords changed radically following the introduction of Section 24 announced by George Osborne in July 2015, and fully implemented by 2020. Section 24 largely tipped the balance in favour of limited companies.
Buy to let mortgage specialist Paragon Bank published research in January 2026 showing that 63% of landlords expect to make future property purchases through a limited company, and a third plan to transfer properties held in their personal name into a company. For context, around 10% of purchases were through limited companies in 2016, before the Section 24 tax changes came into force.
The Companies House data tells the same story. According to research from Hamptons published in February 2026, a record 66,587 buy to let companies were set up in 2025, taking the total to over 443,000, nearly five times the number in 2016. Hamptons estimates that around three quarters of new buy to let purchases are now made through a limited company.
That said, a limited company is not always the right option for landlords when buying new rental properties, let alone transferring ownership of properties to a limited company, where the costs of doing so are high.
In this blog post, I go through the pros and cons of limited companies for buy to let landlords, and why limited companies have become increasingly popular.
Whichever ownership structure you choose, you’ll still need to let and manage your properties under the Renters’ Rights Act. That’s the territory of my bestselling book, The Good Landlord Handbook*, which takes you through every stage of a tenancy, from finding tenants to the end of the tenancy. If you have questions, you can ask me at twice-monthly livestreams in my membership, The Independent Landlord Hub.
Limited companies at a glance
What is a limited company?
First of all, what is a limited company, or a company limited by shares?
It’s a corporate entity that is legally separate from the people who own and manage it. A limited company has its own finances, separate bank account, different tax rules and can keep any profits after paying tax.
Businesses routinely operate using limited companies in all sectors of the economy, not just landlords.
Why are more landlords setting up limited companies?
As mentioned above, Paragon Bank’s research says that 63% of landlords expect to make future purchases through a limited company, whereas only around 10% of purchases were through limited companies in 2016.
The long-term consensus in favour of landlords owning properties in their own names changed considerably in the summer of 2015, when George Osborne, the then Chancellor of the Exchequer announced in his budget speech of 8 July 2015 that he would “level the playing field between those buying a home to let and those buying a home to live in”. That all sounded laudable in principle.
However, what became Section 24 actually penalised individual landlords, giving corporate landlords a tax advantage. So much for the level playing field.
As a result, individual landlords lost the ability to set off the full cost of their borrowing as allowable expenses for income tax purposes. Instead, they were restricted to claiming a 20% tax credit for the interest. However, landlords who used a limited company continued to benefit from the full tax relief. This is because companies pay corporation tax, not income tax, and Section 24 doesn’t impact corporation tax.
Consequently, instead of making things fairer, George Osborne created a two tier private rented sector. Section 24 perversely penalises individual landlords, and gives tax advantages to those who use limited companies for property investing. In 2015, these were the larger landlords and corporate landlords.
With successive increases in base rates since 2022, Section 24 has become an even bigger issue for sole-trader landlords. This is because they’re now paying tax on a paper profit that doesn’t disregard their full (higher) interest payments. This has led to many long-standing landlords selling up, which has fuelled the housing shortage in the private rented sector.
Undeniably, there are tax benefits to setting up a limited company for rental properties, particularly for higher and additional rate tax payers.
However, investing in property through a company can be complicated, costly and time-consuming. The decision over whether or not to invest via a limited company is not all about tax.
The advantages of limited companies for landlords
1. Financing costs are business expenses for companies
First and foremost, the financing costs are a business expense for corporation tax purposes, which is what companies pay. (Individual sole trader landlords pay income tax, which is caught by Section 24).
This means that landlords who invest using limited companies can deduct their mortgage payments from their taxable profits. Consequently, they pay corporation tax on their actual profit, rather than a nominal profit that excludes the financing cost.
2. Corporation tax is lower than income tax
The rate of corporation tax is 19% for companies with profits of up to £50,000, which is lower than the basic rate of income tax of 20%. Companies with profits over £250,000 pay the main rate of 25%, and there is a complicated tapered rate between the two thresholds, known as marginal relief.
Here is a link to the government calculator which estimates a company’s effective tax rate.
Even at 25%, corporation tax is significantly lower than the higher and additional rates of income tax (40% and 45%), although landlords will need to pay tax if they withdraw money from the company via dividends or if they take a salary.
3. More favourable tax treatment of dividends
As the table below shows, dividends are taxed a little more favourably than personal income (as of 20 July 2026).
| Band | Taxable income | Income Tax | Tax on dividends |
|---|---|---|---|
| Personal Allowance | Up to £12,570 | 0% | |
| Basic rate | £12,571 to £50,270 | 20% | First £500 tax-free Thereafter 10.75% |
| Higher rate | £50,271 to £125,140 | 40% | 35.75% |
| Additional rate | over £125,140 | 45% | 39.35% |
The gap between the taxation of dividends and property income will widen from 6 April 2027, when income tax on property income will rise by two percentage points. Individual landlords in England will pay 22% at the basic rate, 42% at the higher rate and 47% at the additional rate on their property income. Corporation tax stays where it is.
So, ten years after Section 24, the government is again raising tax on landlords who hold property in their own name, and leaving companies untouched.
That said, the taxation of dividends is on top of any corporation tax paid, and unless the landlord is a basic rate tax payer, the more favourable taxation of dividends is unlikely in itself to be a reason to buy a rental property in a limited company.
4. Capital gains
Chargeable gains on property sales are taxed as part of a company’s profits, subject to corporation tax, rather than capital gains tax (18% or 24% for residential property, depending on the individual’s tax band). Companies are also not subject to the obligations relating to residential property gains: individuals are required to report any gains to HMRC within 60 days of completion and make a payment on account of the CGT.
On the other hand, there is no tax-free annual CGT allowance for companies. The annual CGT allowance for individuals is £3,000.
5. Inheritance tax planning
Companies offer more scope for inheritance tax planning. This is a topic for specialist advice, and outside the scope of this blog.
6. Joint ventures
Limited companies are very useful for joint ventures, where a shareholder agreement can set out what each party contributes, who gets what, how decisions will be made and the exit terms.
7. Pension contributions
Landlords who are sole traders and have no other “earnings” can only contribute up to £3,600 gross per year to a pension (£2,880 before grossing up), assuming they are under 75. This is because rental income as a sole trader is not earnings for pension purposes.
Landlords who operate through a limited company and draw a salary on the other hand do have “earnings”. This means that landlords can contribute up to £60,000 of their salary from any limited companies to their pension, and benefit from the tax relief, subject to the annual allowance limit.
>> Government guide: Tax on private pension contributions
8. Limited liability
Finally, a company has limited liability, which means that the shareholders aren’t responsible for the debts of the company. However, in practice, shareholders routinely provide personal guarantees for buy to let mortgages, which “pierce” the corporate veil.
The disadvantages of limited companies for landlords
Although there are many advantages to owning a property portfolio via limited companies, there are also disadvantages.
1. Little benefit for mortgage-free landlords
If the property investor is mortgage-free, the treatment of mortgage payments for tax purposes is irrelevant, as they have no financing costs.
Equally, if the investor is a basic rate tax payer, the impact of Section 24 is likely to be low, as they’ll benefit from the 20% tax credit. In both cases, a limited company is unlikely to be the best choice.
A surprising number of landlords are mortgage free. According to the English Private Landlord Survey 2024, 41% of landlords own their properties outright, with no borrowing of any kind.
2. Costly transfers and tax risk for restructuring
Limited companies are more beneficial for buying new properties from scratch. This is because it can be expensive to transfer existing properties to a limited company, as stamp duty and CGT are usually payable.
Consequently, it might not be worth transferring your portfolio to a company. It’s important to get specialist tax advice to check whether this is correct for your circumstances.
Some companies such as Less Tax 4 Landlords have been marketing limited liability partnerships and hybrid property business schemes as a way of restructuring ownership, to get around Section 24. However, HMRC published guidance (Spotlight 63) in October 2023 saying they “do not work” and constitute tax avoidance.
3. More bureaucracy
It costs time and money to set up and manage a company – click on this gov.uk link for a handy list of what you need to do. There’s the additional tax computations and accounting for the companies, that are more expensive than for individuals.
4. Financing is more bureaucratic
When it comes to buying a new property, taking out a buy to let mortgage or bridging loan, there’s considerably more paperwork involved. This adds cost, time and hassle. Also, the buy to let mortgage rates are higher for limited companies than individuals.
5. More hassle
It also can take longer for a company to buy a property, making an individual a more attractive buyer from the seller’s perspective. This is something to bear in mind when in a competitive situation for a property.
The legal costs for conveyancing are also higher due to the extra complexity eg the legal implications of giving a personal guarantee.
6. Enveloped dwellings
Properties worth more than £500,000 are “Enveloped Dwellings”, and an Annual Tax on Enveloped Dwellings (ATED) is ordinarily payable. However, if it’s a ‘qualifying rental business’, it will be eligible for relief from the tax, but the company will need to submit an annual Relief Declaration Return.
Here is a link to the government guidance on ATED.
7. More complicated tax
Finally, as the company is a separate legal person, if the shareholders wish to use the profits personally, they will need to withdraw them.
Whereas dividends are a simple way of withdrawing profits, the tax payable on dividends is on top of the corporation tax the company has already paid.
It is more complicated when taking a salary as personal income tax may be payable by the shareholder, with National Insurance for both the company and the individual. However, a salary is a deductible expense for a company.
Limited company vs sole trader for landlords: a summary
Here’s how the two structures compare side by side. It’s a simplification, and whether you should buy your next rental property in a limited company depends on your particular situation.
| Own name (sole trader) | Limited company | |
|---|---|---|
| Mortgage interest relief | 20% tax credit only (Section 24) | Full deduction as a business expense |
| Tax on rental profits | Income tax at 20%, 40% or 45%, rising to 22%, 42% and 47% from April 2027 | Corporation tax at 19% to 25% |
| Taking money out | Not applicable, profits are yours | Dividends: taxed if more than £500 a year Salary: income tax and National Insurance for company and individual |
| Pensionable earnings? | No. Can just contribute £3,600 gross | Dividends: No Salary: Yes, up to usual caps |
| Tax on selling a property | CGT at 18% or 24%, with a £3,000 annual allowance | Corporation tax on the gain, with no annual allowance |
| Reporting a property sale | Report and pay CGT within 60 days of completion | Through the company’s corporation tax return |
| Mortgage rates | Slightly lower | Slightly higher, and personal guarantees usually required |
| Admin and accounts | Self assessment or Making Tax Digital (depending on level of income) | Company accounts, filings and higher accountancy fees |
>> Related Post: Making Tax Digital (MTD) for landlords: How it works
Final thoughts
Is a limited company best for landlords? For the growing majority buying new rental properties with a mortgage, the numbers now point that way, and the rise in income tax on property income from April 2027 will sharpen the contrast. There’s a reason three quarters of new buy to let purchases are going through companies.
But most is not all. If you’re mortgage-free, a basic rate taxpayer, or thinking of transferring properties you already own, the case is much weaker, if it’s there at all. The tax saved on the way in can be swallowed by the costs of running the company, the higher mortgage rate, and the second layer of tax when you take the money out.
In simple terms, if the amount you lose through the 20% tax credit restriction on your mortgage interest is materially more than the extra cost and hassle of setting up and running a company, plus the double taxation on dividends, a limited company is likely to be worth it. If it isn’t, it’s unlikely to be worth it unless you have other reasons such as setting up a joint venture or wanting flexibility to have family members as shareholders (although that can be another can of worms).
Either way, this is a long-term structural decision, not a quick tax fix, and it’s expensive to unwind if you get it wrong. Run your own numbers, and get specialist tax advice before you commit. Don’t believe anyone who says it’s simple. It’s not.
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