Buying Property Through a Limited Company

Buying property through a limited company has become an increasingly popular strategy for property investors and aspiring landlords, particularly since recent tax changes for private individuals. Most notably, Section 24 of the Finance Act 2015.

This legislation restricted landlords' ability to offset all their mortgage interest against rental income for tax purposes, instead providing a basic rate tax credit. These entities, often called Special Purpose Vehicles (SPVs), are set up specifically to buy and hold property and now account for a significant portion of new buy-to-let investments.

In fact, over 60,000 new limited companies were established for buy-to-let properties in 2024 alone, a 23% increase from the previous year. Hamptons estimates that 70-75% of new buy-to-let purchases now go through a company structure.

Yet, despite these figures, a limited company structure isn't a silver bullet for every investor. To determine if this is the right path for your next investment, you need a clear comparison against individual ownership, a straightforward breakdown of the tax implications (from Corporation Tax to SDLT and CGT), an honest look at the mortgage challenges, and insight into why Independent Legal Advice is paramount.

Is it better to buy through a limited company for buy-to-let?

For investors, a key benefit is the ability to claim mortgage interest as a business expense, a major advantage compared to individual landlords who face restrictions on this relief (as outlined by Section 24).

Additionally, structuring your investment through a company offers flexibility for succession planning; for example, you can make your children shareholders, allowing for income distribution (via dividends) and long-term asset transfer that could be more tax-efficient than certain inheritance planning routes. However, always remember that dividend income is taxed differently from earned income.

Crucially, lenders for limited company mortgages will almost universally require a director's personal guarantee (DPG). This is a significant commitment, meaning you are personally liable for the company's debt if it defaults.

Your solicitor will ensure you receive Independent Legal Advice (ILA) on this matter, explaining the risks before you proceed.

Do You Need Director Personal Guarantee ILA?

Before proceeding with the purchase through a limited company, you must get Independent Legal Advice from a qualified solicitor.

SAM can help with this service for you and any additional directors, giving you peace of mind. Our panel solicitor will:

• Review the mortgage paperwork and guarantee.
• Facilitate a video conference meeting to provide Independent Legal Advice.
• Provide an advisory letter confirming that legal advice was given.
• Issue a certificate of advice to your acting conveyancer or lender (at their discretion).

Main Director

£299 INC VAT

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Is it hard to get a mortgage for a limited company?

While limited companies can obtain mortgages for property purchases, the process differs significantly from personal lending, often within the mortgage terms, compared to individual mortgages.

Generally, mortgages for limited companies (often specific buy-to-let products designed for corporate entities) require a larger deposit – often 25% or more of the property's value – compared to some personal residential or even individual buy-to-let mortgages.

Interest rates can also be slightly higher, reflecting the additional risk. Lenders will rigorously assess the company's financial health, the property's rental potential, and, crucially, the personal financial standing of the director(s).

A key requirement for securing a limited company mortgage is the director's personal guarantee. It isn't just a formality; it means that if the company defaults on the mortgage payments, the director (or directors) who provided the guarantee become personally responsible for the debt.

This is a significant personal risk, binding your own assets to the company's liabilities. Your solicitor will ensure you receive comprehensive Independent Legal Advice (ILA) on this guarantee to fully understand its implications before you proceed.

Is it more tax-efficient to buy property with a limited company?

Corporation Tax vs Income Tax on rental profits

When you own a rental property as a private individual, any profits you make are subject to Income Tax. Your marginal rate will depend on your total earnings, falling into the basic (20%), higher (40%), or additional (45%) rate bands in England & Wales.

Following the Section 24 changes, individual landlords can no longer deduct all their mortgage interest from rental income before calculating their tax bill.

Instead, they receive a basic rate (20%) tax credit on their finance costs, which often pushes higher and additional rate taxpayers into a less favourable position.

In contrast, a limited company pays Corporation Tax on its profits. For most small property companies, the rate is currently 19% on profits up to £50,000.

While the main rate can rise to 25% for larger profits (over £250,000), for many aspiring or new landlords, the 19% rate is a key attraction.

Importantly, limited companies can deduct all eligible finance costs (like mortgage interest) as a business expense before calculating their taxable profit, which can lead to a significantly lower tax bill compared to an individual high-rate taxpayer.

A simplified tax comparison for an individual vs a limited company

Let’s illustrate the potential difference with a simplified example based on £12,000 annual rental income, assuming £2,000 in non-finance expenses and £5,000 in mortgage interest.

This example highlights the impact of Section 24 on individual landlords vs. the full deductibility for companies:

As this example shows, the tax due on the rental profit can be significantly lower when held within a limited company, particularly for higher-rate taxpayers.

However, it's vital to remember that profits taken out of the company by directors (e.g., as dividends) will then be subject to personal tax, so the overall tax efficiency depends on your strategy for withdrawing funds.

Please Note: This information is for illustrative purposes only and provides a simplified overview. Each individual and company's circumstances are unique, and tax rules are complex and subject to change.

We strongly encourage you to seek personalised financial and tax advice from a qualified expert. SAM Conveyancing does not offer tax advice.

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How to buy a property through a limited company

While the fundamental conveyancing process for purchasing a property remains largely similar, purchasing through a corporate entity involves several additional steps. These ensure legal compliance, financial security for lenders, and proper governance for your company.

• 1

  Company Formation and Set Up

  Before you can purchase property through a company, the entity itself must be properly formed and registered with Companies House.

  This involves drafting key constitutional documents, specifically the Memorandum and Articles of Association, which govern how the company operates. These must be set up correctly for property investment purposes from the outset.

  We can handle your company formation for you from £450 INC VAT.

• 2

  Securing a Company Buy-to-Let Mortgage

  Unless you're a cash buyer, a specialist limited company buy-to-let mortgage will be required. These applications typically involve:

  • Higher Deposits: Lenders usually require a larger deposit, often 25% or more of the property value.
  • Rental Value Evidence: The property's projected rental income will be rigorously assessed to ensure it can comfortably cover the mortgage payments.
  • Director's Personal Guarantee: As discussed, directors will always need to provide a personal guarantee, making them personally liable for the company's mortgage debt if the company defaults.
  • Bridging Loans: If you're buying at auction or need to complete quickly, you might consider a bridging loan as a short-term finance solution before securing a long-term mortgage.

• 3

  Independent Legal Advice (ILA) for Directors

  Given the significant personal liability associated with a director's personal guarantee, your lender will mandate that you obtain Independent Legal Advice (ILA).

  This ensures an impartial solicitor fully explains the risks and implications of the guarantee to you, separate from the company's own legal representation.

  We can provide this service from £299 INC VAT for the main director and £180 INC VAT for additional.

• 4

  Formal Board Meeting Notes and Resolutions

  For proper corporate governance, the company's decision to purchase the property must be formally recorded. This involves holding a board meeting where directors pass resolutions confirming the company's decision to proceed with the property acquisition and to enter into the necessary mortgage agreements.

• 5

  Registering the Charge at Companies House

  Once the mortgage is in place, the lender's security over the property (known as a 'charge') must be registered publicly at Companies House. This gives notice to anyone looking at the company's public record that the property is subject to a mortgage, ensuring transparency and legal compliance.

• 6

  If Buying with a Tenant in Situ

  If the property you are acquiring already has tenants in residence (a 'sitting tenant'), there are additional legal steps and due diligence required. This ensures the tenancy transfers correctly to the new company ownership and that all landlord obligations are understood and managed.

Can I transfer ownership of my house to a limited company?

Yes, it's possible to transfer a property you currently own into a limited company structure. However, you should understand that this process is often treated by HMRC as if you are selling the property to your company, and then the company is buying it from you. This can trigger a range of costs and tax liabilities.

Stamp Duty Land Tax (SDLT)

When your company acquires the property from you, it will be liable for SDLT, just as if it were purchasing the property from an unrelated third party.

This often includes the higher rates for additional properties or corporate bodies, meaning the tax bill can be substantial, calculated on the market value of the property at the time of transfer.

Capital Gains Tax (CGT)

For you, personally, transferring the property is considered a "disposal" for tax purposes. If the property has increased in value since you originally acquired it, you will likely be liable for Capital Gains Tax on that appreciation.

Mortgage Implications

If the property has an existing mortgage in your name, this mortgage will need to be repaid and a new mortgage taken out in the company's name.

This re-mortgaging process can incur new arrangement fees, valuation costs, and potentially higher interest rates or different terms for the corporate mortgage.

Legal Fees

You will incur conveyancing fees for the legal work involved in transferring the title from your name to the company's name.

Given these potential costs, it's generally more tax and cost-efficient to establish your limited company first and then acquire new properties directly through it, rather than transferring existing assets.

This avoids the "double taxation" trigger of SDLT and CGT on properties already owned personally.