Limited-company buy-to-let — who it suits, what it costs to move into, and how lenders treat it

A limited company can deduct mortgage interest from its rental profit as a normal business expense. An individual landlord, since April 2020, cannot — they get a 20% tax credit on the interest instead, capped and incapable of producing a refund. That one difference is why so much new buy-to-let lending now goes through a company. It is not, on its own, a reason to move a portfolio you already own — the SDLT and accounting costs of getting in have to be weighed against it, and the benefit itself is smaller than most people assume once you look at who actually pays more tax under the old rules.

Key Takeaways

The single fact that drives incorporation

HMRC states the mechanics plainly: a company paying Corporation Tax can claim interest on property loans as an allowable expense, while an individual landlord paying Income Tax cannot. That is the entire commercial case for a limited company in one sentence, and everything else in this article is either the cost of getting there or the detail of how much the difference is actually worth to a given landlord.

What the restriction actually does to an individual

The restriction on individual finance costs, known in the industry as Section 24, phased in over four tax years. In 2017-18, landlords could still deduct 75% of their mortgage interest from rental income, with the remaining 25% only qualifying for the 20% credit. By 2020-21, that had fallen to 0% deductible — all of it now only qualifies for the credit, worth the basic rate (currently 20%) of the lowest of: the finance costs themselves, the rental business's profits for the year, or the landlord's income above the personal allowance. That reduction cannot be used to create a tax refund, and it is a credit against the final tax bill, not a deduction that lowers taxable rental profit the way it used to.

The practical effect is uneven, and HMRC's own worked examples show why. One example: a landlord with £52,000 of rental income and £20,000 of mortgage interest as their only income pays exactly £2,400 of Income Tax, both before and after the restriction — because without any interest deduction at all, their total income still sits under the higher-rate threshold. HMRC itself puts the proportion of landlords in that position at an estimated 82%. A second example shows the other side: a landlord with £35,000 of self-employment income, £18,000 of rental income and £8,000 of mortgage interest pays £8,000 of tax after the restriction versus £6,400 before it — an extra £1,600 — because the un-deducted interest pushes their total income over the £43,000 higher-rate threshold used in HMRC's illustration, and can also trigger the High Income Child Benefit Charge for landlords with children. The lesson is not that Section 24 is universally punitive; it is that it bites hardest exactly at the point where un-deducted interest tips a landlord into a higher tax band, and does very little to a landlord who was never close to that line.

What a company pays instead

A company's rental profit is simply taxed as ordinary business income under Corporation Tax: 19% where profits are £50,000 or less, 25% where profits exceed £250,000, with Marginal Relief tapering the rate for profits in between (both thresholds shrink proportionately for a short accounting period, or where the company has associated companies). There is no equivalent of Section 24 to work around, because the interest was never disallowed in the first place — it comes off profit before either rate applies.

For a landlord already paying higher-rate Income Tax personally, 19-25% Corporation Tax on the same rental profit, with full interest relief, looks materially better on the numbers that stop there. It is not the whole picture: getting the cash out of the company afterwards, as salary or dividends, is a separate tax event with its own rules, and that second step is what turns a good Corporation Tax number into the real, all-in comparison — get it modelled properly rather than stopping at the headline rate.

What it costs to get into a company

This is the part most comparisons skip, and it is where the Section 24 saving can be eaten up entirely if you are not careful.

Stamp Duty Land Tax on a company purchase starts from the same standard residential bands everyone pays — 0% up to £125,000, 2% on the next £125,000, 5% up to £925,000, 10% up to £1.5m and 12% above that — but a company adds its own 5% surcharge on top of those bands on every purchase, regardless of price, in the same way an individual buying a second residential property already pays a 5% surcharge on top of the standard bands. GOV.UK is explicit that corporate bodies sit under different SDLT rules and rate calculations from individual buyers, and the reason is this surcharge plus a further threshold most individual buyers never meet: 17% SDLT, flat, on any residential property over £500,000 bought by a corporate body or "non-natural person" — a definition that includes companies and partnerships with a corporate partner. That 17% rate does not apply where the company is acting as trustee of a settlement, and reliefs exist for a genuine property rental business, for developers and traders, and for certain other listed uses — but the relief has to be claimed and evidenced, not assumed. A company caught by the 17% rate may also need to pay the Annual Tax on Enveloped Dwellings on top, which is a separate, recurring charge rather than a one-off purchase cost.

If a property is bought by a non-UK resident, a further 2% surcharge stacks on top of all of this — the 2% is additive to the 5% company surcharge, not an alternative to it.

Moving a property you already own into a company is not simply an admin exercise either — it is normally treated as a disposal of the property by the individual owner and a purchase by the company, which is why the SDLT costs above apply to the transfer just as they would to buying it fresh, and why it needs its own proper costing (including the individual's own tax position on the disposal) before you commit, not an assumption that the paperwork is free.

What a lender wants to see

Company buy-to-let lending is a normal, established part of the market, but it is underwritten differently from a personal mortgage, and the difference is mostly about who the lender can actually chase if the loan goes wrong.

• The company itself. A newly formed company with no trading history is harder to assess than one with filed accounts showing rental income already coming in — a lender reading a set of accounts is reading evidence, not a business plan.
• The directors, personally. Most lenders will not rely on the company alone as security and will ask the directors to stand behind the borrowing with a personal guarantee, which puts personal assets back in the frame even though the property itself sits inside the company.
• What the company is set up to do. Lenders want a company that exists to hold and let property, not one with a wide, unrelated trading purpose — a dedicated property-letting vehicle (sometimes called a special purpose vehicle, or SPV) is generally easier to place than a company with a mixed trading history, because the lender is not trying to work out what else the company might do with its cash.
• Ongoing compliance. A company is a legal person with its own record-keeping duties, and a lender extending credit to it is, in effect, relying on those duties being met.

On that last point, the underlying law is specific and worth knowing regardless of which lender you use: a limited company must keep its finances legally separate from its directors and owners (a separate business bank account, not a shared one), and must keep accounting records covering money received and spent, its assets, its debts and any stock. Records have to be kept for six years from the end of the relevant company financial year, longer in some cases. Failing to keep them is not a paperwork slap on the wrist — it can mean a £3,000 fine from HMRC or disqualification as a company director. A company's filed accounts are also a matter of public record, which is part of why lenders find a company with a genuine filing history easier to assess than a brand-new shell.

Who this actually suits

A company structure earns its cost fastest for a landlord already paying higher-rate Income Tax, running enough properties that the SDLT and compliance overhead is proportionate, and planning to hold for the long term rather than sell within a year or two of incorporating. It earns its cost more slowly, or not at all, for a landlord whose total income sits comfortably under the higher-rate threshold even before any interest deduction — HMRC's own figures suggest that is roughly four in five landlords, and for that group Section 24 was never taking much from them in the first place, so a company is solving a problem they don't have.

Worth noting separately: individuals get the first £1,000 of property rental income tax-free each year (the "property allowance"), and only need to report rental income on Self Assessment once it exceeds £2,500 after expenses or £10,000 before expenses. A company counts every pound of rental income as ordinary business income from the first pound — there is no equivalent allowance sitting underneath Corporation Tax.

Individual vs company, side by side

	Individual landlord	Limited company
Mortgage interest	No deduction from rental profit; 20% tax credit only, capped at the lowest of finance costs / profits / income above the personal allowance	Claimed in full as a normal business expense
Tax on rental profit	Income Tax at marginal rate	Corporation Tax: 19% up to £50,000 profit, 25% above £250,000, Marginal Relief between
Tax-free allowance	First £1,000 of rental income tax-free	None — all rental income counted as business income
SDLT on purchase	Standard bands, plus 5% surcharge if it becomes a second residential property	Standard bands plus a 5% company surcharge on every purchase; 17% flat above £500,000 unless relief applies
Record-keeping	Self Assessment records	Statutory accounting records, kept 6 years; £3,000 fine or director disqualification for failing to keep them
What a lender wants	Personal income and credit history	Filed accounts, a clear property-letting purpose, and usually a personal guarantee from directors

Frequently Asked Questions

Does a company mean I no longer need a personal guarantee? No. Most lenders lending to a company still ask its directors to personally guarantee the borrowing — the company structure changes how the interest is taxed, not who the lender can ultimately pursue.

Will moving my existing rental property into a company cost me anything? Treat it as a genuine transfer, not paperwork. The company will face Stamp Duty Land Tax on the purchase, including the 5% company surcharge, and the transfer is a disposal by you as the current owner — cost both sides properly before deciding, rather than assuming incorporation is free once the property is already yours.

Is Section 24 going to cost me money if I stay as an individual? Not necessarily. HMRC's own examples suggest an estimated 82% of landlords pay no extra tax because of it — the ones who do are typically pushed over a higher-rate threshold by interest that no longer reduces their taxable income.

Does the 17% Stamp Duty rate apply to every company purchase? No. It applies only to residential properties over £500,000 bought by a company or similar corporate body, and reliefs exist where the property is used in a genuine property rental business — the surcharge that applies to every company purchase regardless of price is the separate 5% company surcharge.

What makes a company easier for a lender to place? A clear, single purpose — holding and letting property — and a set of filed accounts showing that is actually what it does. A brand-new company with no trading history and no accounts is a harder file for any lender to say yes to quickly.

Whether a company is worth the entry cost depends on your tax position, how long you plan to hold, and what you already own outside it. Deplexifi models both sides of that decision — the Corporation Tax and SDLT numbers, and the lender's view of the company — before a landlord commits to either route.

Assuming incorporation is a paperwork exercise — moving a property you already own into a company triggers its own Stamp Duty and disposal costs, and most lenders still want a personal guarantee from the directors regardless of the company structure.

Nothing here is regulated financial advice. Deplexifi arranges commercial finance for businesses — this article describes general lending practice and the published position of the sources listed below, not a recommendation for any individual business.