December 5, 2023 4:25 pm

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Nikka Sulton

Engaging in buy-to-let (BTL) property can prove to be a rewarding venture, offering financial stability. Aspiring landlords have the choice of either owning a rental property privately or establishing a limited company to manage their business. This comprehensive guide aims to elucidate the distinctions between these two approaches, assisting you in making an informed decision aligning with your preferences and objectives.


What is a buy-to-let property company?

A buy-to-let property company, in essence, is a limited company established for the acquisition of rental properties.

For landlords, two primary options exist: purchasing properties as an individual and subsequently paying income tax, or procuring them via a limited company and, consequently, paying corporation tax. The latter choice is favoured by many landlords due to its potential tax efficiency. Notably, the arrangement of a limited company results in rental income being attributed to the company. Consequently, landlords have the flexibility to draw a salary from the company or opt for dividends as their mode of receiving rental income.


What are the pros and cons of setting up a property company?

Before committing to the establishment of a property company, it is essential to carefully evaluate the advantages and disadvantages, as highlighted below:



  • Formation of a limited company entails the payment of corporation tax, which can be more advantageous in comparison to individual income tax rates.
  • A limited company structure legally separates your investment property from personal matters, thereby absolving you of personal liability for any potential losses.
  • Unlike individual ownership, limited companies are not subject to the restrictions on buy-to-let mortgage interest tax relief.
  • Property transfers between companies can potentially circumvent the requirement to pay stamp duty, inheritance tax, or capital gains tax.



  • The process involves added administrative complexities and expenses, including the obligation to file company accounts.
  • Transferring properties already owned by individuals into a limited company comes with associated costs.
  • Limited companies face a more limited selection of buy-to-let mortgages, although this landscape is gradually improving.
  • Seeking professional advice from a broker or accountant may be necessary, incurring additional expenses.


What are the buy-to-let tax changes I need to consider?

In April 2017, significant tax changes were implemented, compelling numerous landlords to opt for the limited company approach.

Before April 2017, landlords had the privilege of deducting 100% of mortgage interest from their rental income, effectively reducing their tax liability. However, changes were gradually introduced to phase out this buy-to-let mortgage tax relief. As of April 2020, landlords began receiving a tax credit equivalent to 20% of their mortgage interest payments. Consequently, landlords subject to income tax can no longer offset expenses against their tax liability and are now entitled to only a 20% refund on their mortgage interest costs.


How to set up a property company

If you’ve decided to establish a property company, your initial step is to register with Companies House. The online registration process incurs a fee of £12, payable by debit or credit card, and typically results in your company’s registration within 24 hours.

Selecting a company name is a critical aspect of this process. The name must be unique, sufficiently distinct from existing companies, and free from any misleading elements. Furthermore, you’ll need to specify an address for your company, which can be either your business location or your residential address. Appointing directors and shareholders, along with providing a description of your business activities, is also essential.

If you choose online registration, you can simultaneously register for corporation tax. Otherwise, you must complete this within three months of commencing business operations to facilitate the annual filing of your company tax return.

For limited companies, it is advisable to establish a dedicated business bank account, ensuring clear separation between personal and business finances. Maintaining accurate records is crucial for the timely filing of accounts and tax returns.

Taxation on rental income can be intricate, so it’s essential to grasp the fundamentals. Private landlords are subject to a tiered tax system:

  • Earnings up to £12,750 are not taxed due to the personal allowance.
  • Income between £12,571 and £50,270 incurs a basic rate of 20%.
  • Earnings between £50,271 and £150,000 are subject to the higher rate of 40%.
  • Income exceeding £150,000 faces an additional rate of 45%.

In contrast, limited companies currently pay a flat rate of 19% in corporation tax, effective until April 2023. Subsequently, the top corporation tax rate, applicable to profits exceeding £250,000, will increase to 25% in April 2023.

Companies with taxable profits below £50,000 continue to pay the existing 19% rate. Those with profits ranging from £50,000 to £250,000 will be subject to rates varying from 19% to 25%, depending on the amount of marginal relief they qualify for. Additional details on this can be found on the website.


How do I get funding to start a buy-to-let company?

When it comes to financing your new business venture, there are several avenues to explore.

A commonly chosen option is a business loan, allowing you to access a lump sum, typically ranging from £1,000 to £3 million. You then repay this sum in manageable monthly instalments, inclusive of interest. To secure a business loan, it’s imperative to craft a robust business plan detailing your objectives and the intended utilisation of the funds. For commercial properties, commercial mortgages emerge as an appealing lending choice.

Many major banks provide unsecured business loans, permitting you to borrow without collateralizing business assets. While secured loans typically offer higher borrowing limits, they necessitate using an asset, such as property, as collateral. In the event of loan default, the lender possesses the authority to sell the asset to cover the outstanding debt. Due to the reduced risk for the lender, secured loans often come with more competitive interest rates.

For startups trading for no more than 36 months, startup loans present a viable option. The primary source for these loans is the UK government-backed startup loan scheme.

If you find yourself uncertain about the most suitable funding avenue for your business, Swoop’s team of experts is at your disposal. They can discuss your options and assist you in identifying the most fitting solution. Register with Swoop to embark on your financing journey.




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