Worked example: the same property both ways
Take £18,000 of rent, £3,000 of running costs and a £180,000 interest-only mortgage at 5%, which is £9,000 of interest. Personally, you are taxed on £15,000 and get a credit on the interest. In a company the profit is £6,000, Corporation Tax is £1,140, and £4,860 is left. This is the cash each route leaves in a year, after the mortgage and tax:
| Salary | Personal, 2026/27 | Personal, 2027/28 | Company, profit paid out | Company, profit left in |
|---|---|---|---|---|
| £30,000 (basic rate) | £4,800 | £4,680 | £4,391 | £4,860 |
| £60,000 (higher rate) | £1,800 | £1,680 | £3,301 | £4,860 |
| £130,000 (additional rate) | £1,050 | £930 | £3,144 | £4,860 |
Three things stand out:
- Basic-rate landlords keep more personally: £4,800 against £4,391 paid out of a company. This is before any company running costs.
- Higher-rate landlords keep more in a company on these numbers: £3,301 against £1,800. The gap falls to nothing if the company costs an extra £2,885 a year, whether that is accounts or dearer borrowing. On this loan, that is 1.60 percentage points of interest.
- Leaving profit in the company matters most: nothing more is due until you take it out, so £4,860 stays available to reinvest. Tax on it is delayed, not removed.
The 2027/28 column uses the higher property rates. The company columns use 2026/27 rates throughout, because 2027/28 dividend rates are not in our rule registry. The company figures assume all profit is paid as a dividend in the same year and include no company running costs. They also assume the company lets to unconnected tenants. A close company that exists to let to connected people, such as family, is usually a close investment-holding company, which pays the main rate of 25% on all its profits. Here that would mean £1,500 of Corporation Tax instead of £1,140. To test your own numbers on the personal side, use the tax calculator or the 2027 rate calculator.
Mortgage interest: the main difference
The main reason to incorporate is the treatment of debt. Under Section 24 (ITTOIA 2005 s.274AA), an individual landlord cannot deduct mortgage interest from rental profits. They get a tax credit at the basic rate instead (20% in 2026/27, 22% from 2027/28). A higher-rate (40%, 42% from 2027/28) or additional-rate (45%, 47% from 2027/28) taxpayer is therefore taxed on rent before interest and relieved at a lower rate.
That restriction applies to individuals, not companies. A company's interest is brought into account under the loan relationships rules (CTA 2009 s.296), so it generally reduces the profit that Corporation Tax is charged on.
Corporation Tax vs Income Tax
A limited company pays Corporation Tax on its net profit. The main rate is 25% on profits over £250,000. The small profits rate is 19% on profits of £50,000 or less, with Marginal Relief in between. Those limits are reduced for short accounting periods and for associated companies.
Profit left inside the company belongs to the company, not to you. To spend it personally you have to extract it, which is taxed again.
The extraction tax: getting money out
Profits usually come out as dividends. The dividend allowance is £500, and dividends above it are taxed at 10.75% basic, 35.75% higher and 39.35% additional rate for 2026/27. Combined with Corporation Tax, that second layer can cancel out the interest advantage:
- Leaving profits in the company: tax-efficient if you plan to reinvest cash flow into further properties or pay down company debt.
- Withdrawing profits as income: Corporation Tax at 19% to 25%, then dividend tax at the higher rate of 35.75%, is a combined 47.96% to 51.81% on profit above your allowances.
Financing and administration costs
A company usually costs more to run, and may cost more to fund, than holding personally:
- Mortgage pricing: company buy-to-let products are a separate market, and rates and fees can be higher. Compare real quotes for both routes before relying on any saving.
- Personal guarantees: lenders commonly ask directors for personal guarantees, so a company may not remove your personal liability for the debt.
- Accounts and filing: annual accounts, a Company Tax Return, a confirmation statement and a separate bank account all add yearly cost and work.
Moving existing properties vs buying new
Setting up an SPV for a new purchase is simple, although residential property bought by a company carries a 5% SDLT surcharge. Above £500,000, certain corporate buyers pay a flat 17% instead, unless a relief applies. A property rental business may qualify, but you must meet the conditions.
Moving a property you already own is a different matter. You and your company are connected, so SDLT is charged on at least market value (FA 2003 s.53) at the company rates above, whatever the company actually pays you. The transfer can also trigger Capital Gains Tax.
Incorporation relief (TCGA 1992 s.162) can roll a gain into shares when a person transfers a whole business as a going concern in exchange for shares. It is a Capital Gains Tax relief and does not remove SDLT, and whether a letting portfolio counts as a business depends on the facts. Take advice before relying on it.
What the worked example leaves out
- A sale. Gains on the property are taxed inside the company, and taking the proceeds out is taxed again. See the hold vs sell calculator for the personal side.
- Purchase costs, including any difference in mortgage fees between the two routes.
- The Annual Tax on Enveloped Dwellings, which applies mainly to companies owning residential property valued above £500,000, although reliefs may apply.
- Company profits above £50,000, and rates in Scotland and Wales.
- Child Benefit and personal allowance effects, which our Section 24 guide covers for individual landlords.
Questions landlords ask
Can a limited company deduct mortgage interest?
Generally yes. The Section 24 restriction applies to individuals. A company's interest is dealt with under the loan relationships rules and reduces the profit charged to Corporation Tax.
Is an SPV limited company better for a basic-rate taxpayer?
Often not. Basic-rate landlords already get relief at the basic rate (20% in 2026/27, 22% from 2027/28), so company running costs and dividend tax can outweigh the difference. Check first that the rent does not push you into the higher-rate band, because rent is counted before interest.
Can I transfer my existing mortgaged buy-to-let into an SPV?
Yes, but it is treated as a transfer to a connected company. It usually means a new mortgage, SDLT on market value and possible Capital Gains Tax.
What is the dividend tax rate when extracting profits?
After the £500 dividend allowance, dividends in 2026/27 are taxed at 10.75% basic, 35.75% higher and 39.35% additional rate.
Tax rules: UK registry v1.1.0, last reviewed 2026-09-30. Sources and method.