Should I buy a rental property in my name or as a limited company?

Although it may seem more “trendy” now to buy through a limited company, it may not be the best solution for you. On the other hand, for long term wealth planning it may be advantageous.

Let’s start with understanding why you buy property

The first important distinction to draw when making this decision is whether you’re a property trader or investor.

If you buy a property to make value-adding improvements on it and sell back for a profit, you’re a trader. This is also known flipping. In this case you’re likely to be best-off buying as a limited company.

Why? Because when trading properties as a limited company you will pay Corporation Tax on your profits. If you’d bought a property to “flip” as an individual, your gains would be taxed as income. Which, if taxed at higher and additional rates will lead to a much higher bill!

Note that as an individual you might be able to get the profit treated as a capital gain rather than income if you can prove that you intended to rent out the property. Or maybe you did rent it before selling!

If you buy a property to collect the rent and watch the property price appreciate over time, you’re an investor. This is where we get into the “maybe” territory: most investors have historically operated as sole traders, but many will now benefit from using a limited company.

Don’t forget that if you sell a personal home it can qualify for Private Residence Relief.

Advantages of buying property through a limited company

From a purely financial perspective, there are five main reasons why you might want to hold property through a company rather than yourself.

1. Tax efficiency

If you own a rental property as an individual, you will be liable for income tax and national insurance contributions (NIC) on the profit you make from rental income. Whereas, if you own property through a company, the profit you make will be subject to 19-25% Corporation Tax instead.

This may not make a great deal of difference if you only pay 20% tax as a basic-rate taxpayer. However, if you are a higher-rate or additional-rate taxpayer, your profits will be subject to Income Tax of up to 40% or 45%, respectively. Your personal tax liability will be even higher if you live in Scotland.

Therefore, landlords whose earnings exceed the basic-rate tax band could make substantial tax savings by owning their rental properties through a limited company. Moreover, if you intend to keep company profits in the business rather than extract rental income as a salary or dividends, you may be able to achieve even greater tax savings.

2. Claiming mortgage interest

Under Section 24 of the Finance Act 2015, mortgage interest is no longer an allowable expense for individual property investors. Instead, property investors can only claim 20% of the mortgage cost as an income tax deduction.

However, Section 24 rules do not apply to companies. When buying property through a limited company, you can claim mortgage interest as a business expense against your profits to reduce your Corporation Tax bill. This could result in significant tax savings, especially if you own multiple mortgaged investment properties.

3. Inheritance Tax relief

By owning property through a limited company, the beneficiaries of your estate may be able to claim Business Relief to reduce the amount of Inheritance Tax payable on your portfolio.

Whereas, if you own investment properties as an individual and plan to pass them on as part of your estate, your beneficiaries could end up paying 40% Inheritance Tax on the value of the properties above the £325,000 threshold.

4. Limited liability

When you hold investment properties through a company rather than directly, you will benefit from limited liability for any losses that your property business accrues. This means that, if the company is sued or falls into debt, you won’t be held personally responsible.

5. Flexible ownership options

When purchasing property directly, the maximum number of individuals who can share ownership is restricted to four. However, if you buy through a company, any number of people can be indirect owners of the property by holding shares in the company.

Disadvantages of buying investment property through a limited company

There are clear benefits for certain individuals, but buying property through a limited company does have some potential disadvantages when compared to purchasing directly as an individual:

1. Think of your exit as it is expensive to sell a home

It is important to understand the costs of selling a home through a company. In your own name the profit would be subject to Capital Gains Tax which currently stands at 18% and 28%, depending on your income tax band.

When you sell a property in your company you pay Corporation Tax on your profits. However, the remaining balance sits within the company accounts. To get this to your personal name you then need to pay additional personal taxes (most likely dividends) so therefore your taxes can end up being extortionately high.

2. Dividend taxation when you take the money out

If you're leaving your rental profits in the company, there’s no issue. You pay Corporation Tax, then leave the post-tax income to roll up to perhaps buy more properties.

But if you're taking the money out — for example, to spend on your own living costs — you'll be taxed on the dividends you take. That means you'll be paying Corporation Tax first, then paying dividend tax on what's left in order to take it out.

So if you want to live off your property income rather than leaving it to accumulate, it'll be a bit of a toss-up. You'll save tax in some ways, but incur extra tax in others. You'll have to run the numbers to work out which will work out best in your situation.

3. Increased accounting and administration requirements

Running a limited company generally involves additional administration and more complex accounting requirements than operating as an individual landlord or property investor. You will be required to:

• file annual accounts and a confirmation statement with Companies House each year
• prepare a company tax return for HMRC to work out your Corporation Tax bill
• prepare a self-assessment tax return for HMRC, to declare any untaxed income you receive from the company, such as dividends or expenses
• operate PAYE if you intend to pay yourself a director’s salary
• issue dividends to supplement your salary income if you want to extract profits from the company in the most tax-efficient way

4. ATED Charges

This is one to be explained further in a future article. But a quick mention here is a must.

Annual Tax on Enveloped Dwellings (ATED) is essentially an annual charge on more expensive property.

Current guidelines state that the charge applies to companies that own UK residential property valued at more than £500,000.

The annual charge varies based on property value. The current charge for homes of value between £500,000 and £1 million is £4,450 but this can rise all the way to £292,350 for homes with a value over £20 million from 1st April 2025 to 31st March 2026..

As always, there are some reliefs and exemptions that can bring this charge down so it’s worth seeking advice if you are looking to buy property of high value.

5. Stamp Duty surcharge

When buying residential property in England or Northern Ireland, limited companies pay an additional 5% on top of the standard rate of Stamp Duty Land Tax (SDLT) on all property purchases above £40,000, including the first. A flat rate of 17% SDLT applies when companies buy residential property for more than £500,000.

6. No Capital Gains Tax allowance

When selling a buy-to-let or investment property, individuals pay Capital Gains Tax (CGT) on profits. However, they can reduce their liability by utilising their annual CGT allowance, which is £3,000 for the 2024/25 tax year.

Also read: How To Claim Tax Expenses For Tools And Vehicles If You're A Sole Trader

How to decide if using a limited company is right for you

What you decide to do is going to largely depend on the following factors:

1. How much income you currently make from other sources?

If you’re paying the higher rate of income tax, and you don’t have a lower-earning spouse whose name the property income could be put under, the lure of paying the much lower rate of Corporation Tax is going to be strong.

2. Do you want to live off the property income?

Leaving it rolling up in the company for future purchases, or just until your other sources of income stop — will leave you better off than if you need to take it out to spend.

3. Do you use mortgages?

The ability to claim the entirety of your mortgage interest as operating expenses will be a major argument for using a company for higher rate taxpayers.

4. Who are you buying properties for?

As mentioned earlier you have to think of your exit strategy.

Do you plan to sell the properties off to finance your luxury car collection in your retirement years? Or is your plan to pass your portfolio on to future generations?

If passing your properties on is important to you, holding them within a company (if structured correctly) could result in huge Inheritance Tax savings.

5. What would you do?

I think the best solution is to use a combination of the two.

For my personal situation, I would look to buy properties that generate up to the basic rate limit after expenses through my personal name. If planned correctly this could require less upfront costs to purchase. That’s because if you move personal homes you could make use of lower deposits, Stamp Duty savings, and more. This is vital for those at the earlier stages of their property investment journey. It also gives flexibility that if you ever need an injection of cash you can sell a personal home and not have to pay Corporation Tax and Dividend Tax.

This means that if I decided to scale back my other forms of income, I would have income to make use of the Personal Allowance and 20% tax band, the most efficient form of income.

Then after this I would be building my portfolio through a limited company, minimising drawing any funds from the business and instead holding to reinvest. Don’t forget the initial deposit you put into the company is a director loan, so these can be drawn out “tax free” until you are fully repaid.

However, if you are in the middle of your career and anticipate many years of high earnings you may choose to purchase through a limited company first. There really is no right answer and every individual will have their own most efficient path depending on their individual scenarios.

This does not represent financial advice and I am only showing you what I would do in my personal situation based on all the information above.

Also read: What is Income Tax and when do you start paying it?