Deciding whether to buy a rental property through a limited company or in your personal name is a complex choice that many landlords face. With tax rules evolving and investment goals differing from person to person, the decision isn’t black and white. In Episode 18 of Optimum Live, Michael Blaken joined the show to unpack the key financial considerations when it comes to structuring your buy-to-let properties.
This blog post summarises some of the most important points discussed during the episode, helping you understand the tax implications, potential pitfalls, and long-term strategies that may influence your choice.
Key Point 1: Stamp Duty and Upfront Costs Are Largely the Same
Regardless of whether you buy a rental property in your personal name or through a limited company, if it’s an additional property, the stamp duty surcharge still applies. For a £300,000 property, for example, you can expect to pay around £20,000 in stamp duty alone. That’s before adding legal fees, searches, and your deposit.
What many investors overlook is the total upfront cost. While you may have heard that you only need a 25–30% deposit, once you factor in all other buying costs, the outlay may be closer to one-third of the property price. Whether the money comes personally or via a limited company can have a knock-on effect, particularly in terms of how you fund that deposit. If you’re pulling money out of a trading business personally, you may also incur additional dividend tax.
Key Point 2: Growing Popularity of Limited Companies for Long-Term Investors
The use of limited companies for holding rental properties has gained popularity in recent years, largely due to changes in how mortgage interest deductibility works for personal landlords. Previously, landlords could offset all their mortgage interest against rental income. Now, individuals only receive basic rate tax relief (20%) on mortgage interest, regardless of their tax bracket. For higher-rate taxpayers, this often results in a higher effective tax bill, even if they’ve made no real income from the rentals.
In contrast, limited companies can still deduct full mortgage interest as a business expense before calculating tax, potentially resulting in significant savings, particularly for landlords planning to reinvest profits and grow a portfolio. If you’re building long-term wealth through multiple properties and not needing to draw the profits personally right away, a limited company structure may give you greater tax efficiency and flexibility.
Key Point 3: Exiting May Be Simpler Personally, But There Are Inheritance Opportunities with Companies
When it comes time to sell the property, personal ownership tends to offer a simpler tax treatment. You pay Capital Gains Tax (CGT) on the gain above your tax-free allowance at either 18% or 24%, depending on your tax band. The profit ends up in your bank account, post-tax.
With a limited company, you’ll first face 25% corporation tax on the gain. Then, if you want to take that profit out, you’ll face an additional tax in the form of dividends or capital distributions. Effectively, that means a double tax hit if the end goal is to access the money personally. Therefore, if you’re only planning on holding the property for a few years, buying personally may make more sense.
However, for those with long-term ambitions – especially families looking to pass wealth down – a well-structured Family Investment Company (FIC) can preserve wealth and reduce inheritance tax liabilities. This approach is increasingly common and works well when rental income is reinvested, and there’s no immediate need to draw profits personally.
Summary
Choosing whether to buy a buy-to-let property in your name or through a limited company isn’t a one-size-fits-all decision. Much depends on your personal tax position, long-term goals, how you intend to fund the purchase, and whether you need the income in the short term. With differences in tax relief for mortgage interest, complexities in capital gains treatment, and the potential for inheritance planning via limited companies, the choice demands a careful review of your financial landscape.
Whether you’re a first-time landlord, a seasoned property investor, or someone exploring property as part of a retirement strategy, it’s crucial to approach this decision fully informed. Optimum Professional Services are happy to have an initial discussion and offer tailored advice based on your unique circumstances.
To hear the full conversation and explore these points in more detail, we highly recommend tuning into Episode 18 of Optimum: LIVE!, now available to watch or listen. Insightful and jargon-free, it’s packed with real-world examples and practical advice to help you make the right choice for your property ventures.
If you’d like us to help, please get in touch with the tax team here at Optimum. And when you’re ready to buy, why not ask our legal team to help with the conveyancing?
