Buy-to-let: what to consider before setting up as a limited company

Updated on 22 May 2017 | 1 Comment

More landlords are looking to set up as a limited company to beat the buy-to-let clampdown. But how do you know if it will work for you? John Fitzsimons crunches the numbers.

With numerous Government changes coming into force making life tougher for landlords, there has been a lot of talk in recent months of the benefits offered by owning your portfolio through a limited company rather than as an individual.

And many landlords are adopting this tactic, with Countrywide reporting that one in five rental properties are now owned by a corporate landlord, the largest proportion since records began in 2010.

However, as we explained last week, it’s not an obviously beneficial move for a landlords, as there are plenty of additional costs to consider which could actually leave you worse off.

So how do you work out whether it is right for you?

We spoke to James Mitchell, senior client manager at D&T Chartered Accountants, to find out.

Looking for a buy-to-let mortgage? Get a free quote today


Everyone is different

As Mitchell says, there is no easy answer to exactly when going the corporate route is best.

However, he adds: “The general view is that it can be very useful when you have a number of buy-to-let properties. For accidental landlords, with perhaps one property, it’s not worth it.

“But when you are running your property portfolio as a business, it is well worth looking at.”

Stamp Duty and Capital Gains Tax

The first thing to consider is that transferring properties owned as an individual into a corporate structure can be very expensive, so you may need to have a significant amount of cash in place just to do it.

From HMRC’s viewpoint, this transfer of ownership represents a sale and purchase.

So for each property you move over, there will be a Stamp Duty bill to account for. And with landlords having to pay a 3% Stamp Duty surcharge compared to purchases for owner occupiers, the costs here can quickly rocket.

For example, if you are looking to transfer five properties worth £150,000 each, that’s a total Stamp Duty bill of a whopping £25,000.

You will also have to pay Capital Gains Tax, at a mammoth 28%, if the properties have increased in value since you bought them.

Again, the costs here can be huge, with the location of your portfolio playing a part.

As Mitchell explains: “Value is a big consideration. If you are transferring over a large portfolio in the north, then in all likelihood there will not be such a large tax hit as if you were moving over similar properties in the south.

Landlords need to consider how the value of the property has changed since they bought it, as well as if they qualify for any reliefs, for example if they have ever lived in the property in the past.”

How old are you?

If you want to move your portfolio into a corporate structure, then that will involve refinancing.

But if you are over 50, this may not be as easy as you would think, with lenders repeatedly criticised for being reluctant to lend to older borrowers.

Mitchell said: “We have some clients with 30 properties or so.

For one of them it would be beneficial to transfer to a limited company, as even though it will cost them tens of thousands to do so, it will save them in the long term. But another client is of an age where remortgaging is an issue, so it won’t work for them.”

How long the landlord has held the properties, and how highly ‘geared’ they are (essentially, the loan-to-value of the buy-to-let mortgage), is another important consideration. 

If they have held the properties for a long time, the outstanding mortgage may be relatively small now, meaning they are less impacted by the changes to the mortgage interest tax relief rules.

Looking for a buy-to-let mortgage? Get a free quote today

What’s your plan?

What you are looking to achieve from your portfolio is another thing to bear in mind. Is your property investment providing another income stream that you need today, or is part of a long-term investment strategy?

Rob Bence, co-founder of investing community The Property Hub, explains that if you are simply looking to supplement your income while you work, then you are normally better off not buying through a limited company as you will be taxed twice – as well as paying Corporation Tax, you’ll need to pay tax on the money you take out of the account.

He adds: “If you only want the income for the future after you have stopped working then a limited company is more likely to suit. Corporation tax will be falling to 17% by 2020.

There are also benefits surrounding things like expenses. Companies pay tax on profit, while individuals now pay tax on income.

You are also able to reduce your tax bill if you reinvest your profits, for example if you use rental income to expand your portfolio.”

Individual ownership vs owning through a limited company

Here’s an overview of the main costs to consider to understand if setting up a limited company makes sense for you.


Property held personally

Property held through a limited company

Tax when buying a property

Stamp Duty rates plus 3% surcharge.

Stamp Duty rates plus 3% surcharge.



Rental income taxation

Subject to Income Tax at your marginal rate 20%/40%/45%.

Profits subject to Corporation Tax at 19%.


If drawing an income through dividends the first £5,000 is tax-free but dividend tax rates at 7.5%/32.5%/38.1% apply on top of Corporation Tax.



Mortgage interest tax treatment

In 2017/18 you will be able to deduct 75% of costs from rental income before tax due.


By April 2020 mortgage interest won’t be an allowable expense for individuals and instead there will be a 20% credit

Mortgage interest is an allowance deductible expense.

Tax when selling property

Capital Gains Tax at 18/28%  –   depending on whether you are a basic or higher rate taxpayer after £11,100 annual exemption.


Subject to Corporation Tax at 19%.

Other taxes


Annual Tax on Enveloped Dwellings – applies to properties worth £500,000 or more.

What’s clear is that you will need to do some thorough sums in order to work out exactly what difference going the corporate route will make to your finances, so getting some professional advice certainly seems like a sensible idea.

If you think becoming a limited company could lower your bill read: How to set up a limited company: tax benefits, costs and more.

If you’re considering a buy-to-let investment or are already a landlord, we’d like to hear from you. Email with your stories.

Read more on loveMONEY:

How landlords can cut their costs

How to avoid troublesome tenants

The £5,000 cost of chasing cheap mortgages


Be the first to comment

Do you want to comment on this article? You need to be signed in for this feature

Copyright © All rights reserved.