Limited Company Buy To Let Guide

Before you read on, please note that Cleerly is a mortgage broker with market access to buy to let mortgages, but we are not tax advisers. This guide is intended for information purposes only, and you should seek independent tax advice regarding your specific situation.

Having understood that, if you're a professional who is looking to build sustainable passive income as a side hustle, property investment is a go-to route for many. Monthly property income, not to mention the increasing value of property over time, can be a great way to make your surplus income work hard while you’re doing your day job. For many, it is also a simpler concept to understand than alternatives, such as trading the stock market.

Many seasoned investors buy and hold property through a limited company. The primary reason is to avoid the current taxation of the buy to let market in recent years. Lenders are also stricter on personally owned buy-to-let when applying ‘stress-tests’ that determine your maximum lending.

Could limited company buy to let be the solution to both problems?

This guide will examine the pros and cons of limited company buy to let so you can decide whether it is right for you.

Why limited company buy to let?

This is the first question to answer. Prior to 2017 most individuals wanting to invest in property did so in their personal names as sole traders.

In 2017, there were significant tax changes affecting personally owned buy-to-let properties in the UK.

Starting in April 2017, landlords could no longer deduct all mortgage interest costs from rental income for tax purposes. Instead, the allowable deduction was restricted to 75% of finance costs, with the remainder deductible at a basic rate. This tapering continued until April 2020, when only a basic rate deduction applied to finance costs.

In short, the largest cost of buy to let - usually the mortgage payment – was not fully deductible as an expense for personally owned property. The result: higher tax bills due and lower net profits. 

Understanding how tax for buy to let property has changed since 2017

It is important to understand the tax impact of personal versus limited company buy to let before buying investment property

The sums below explain the problem.

Before April 2017


For example: - 

£1,000 rent - £250 allowable expenses - £500 mortgage interest = £250 rental income profit for tax

From April 2017


For example: -

£1,000 rent - £250 allowable expenses = £750 rental income profit for tax

The outcome of the above changes is you cannot deduct mortgage interest as a cost when calculating your rental income profit for tax.

This is not the whole picture yet, as you now need to calculate your total income for tax, including your income from employment or self-employment on top of the rental income profit.

If we use the same exmaple to calculate total income on which you will be taxed on, it looks like this as a calculation, with another worked example below.


For example: - 

£750 rental income profit x 12 months = £9,000 annual rental income profit, + £50,000 job income = £59,000 Total annual income

The new taxation system after April 2017 meant the landlord could now claim a tax reduction in place of claiming relief from mortgage interest payments. The tax reduction works by giving you 20% of the lowest value from the following: - 

  • Your mortgage interest payments (£500 x 12 = £6,000)
  • Rental income profit (£750 x 12 = £9,000)
  • Total annual income after factoring in deductions and losses (£59,000)

So instead of being able to deduct expenses plus mortgage interest of £750 per month or £9,000 per year, there is now a maximum allowable deduction of £4,200. This is calculated as follows:

  • Expenses = £250 x 12, or £3,000 per year.
  • Tax reduction instead of mortgage interest = £6,000 x 20% = £1,200
  • £3,000 + £1,200 = total tax deductible expenses. 

The above would mean that our working professional who is a part-time landlord would encounter a property tax bill of £2,346, resulting in rental income after tax for the year of only £654. You also have to pay the normal tax on your employed/self-employed eanrings too, so this example will push you in the higher tax rate!

Mortgage payments can be treated as an expenditure in a limited company. Limited companies can deduct the whole of their mortgage interest from rental income profits, minimising the company's taxable income.

This is the main reason that the rate at which new property companies are being set up has tripled since 2017.

Whilst there are potential tax benefits for owning a property through a limited company, it is important for professionals to know that mortgage rates and fees can be higher for this type of arrangement. Since 2017 the number of limited company buy to let mortgage products has increased to match demand, which has caused the pricing difference between limited company mortgages and personally owned mortgages to reduce.

Speaking with your tax adviser about your strategy to understand tax implications is important, closely followed by a consultation with your buy to let mortgage specialist. Cleerly's mortgage consultants have been helping landlords with their finance arrangements for many years, and a no-obligation consultation can be arranged to understand the pros and cons of limited company buy to let and whether it is right for you.

How do I understand which type of property ownership is right for me?

When assessing whether your strategy for property ownership it is important to understand the pros and cons of limited company buy to let, as it is not the right solution for everyone.


  • As mentioned earlier, claiming mortgage interest as an expense is a big plus when offsetting expenses for tax, which cannot be done at the same level with personal ownership.
  • Paying corporation tax on your rental profits instead of income tax can make a big difference to your tax bill if you are a higher or additional rate tax payer.
  • You can have multiple owners via issuing shares in a company, whereas with perosnally owned buy to let you are restricted to four owners. This can be beneficial when there is family ownership, or wanting split ownership in differing proportions. It is also easy to add and remove shareholders compared with personal ownership.
  • In the event of your death, your property will form part of your estate for inheritance tax (IHT), which means the total value of your assets are taxed at 40% where they exceed £325,000. By owning through a limited company there is business relief available to reduce the amount of IHT. 
  • If your business falls into debt or gets sued, you benefit from limited liability personally, which means you are not personally responsible. However, any mortgage lender will likley want a personal guarantee from the Directors of the company, which means the mortgage debt is your responsibility.



  • Despite improvements in recent years, there are still fewer and less competitively priced mortgages than personal buy to let.
  • Owning a company means directors have accounting and administration responsibilities. These include filing confirmation statements and accounts annually, self-assessment tax returns for any income you take from the company personally, and also taking and acting upon advice from your accountant about how to take your income (salary and/or dividends).
  • Potentially, higher rates of stamp duty apply to companies when buying property. In England and Northern Ireland this can be a flat rtae of 15% for property purchase above £500,000. There are lower thresholds and differing tax rates in Scotland, and these differ again in Wales. It is important that these rates are understood fully before deciding where to buy, and how to own property.
  • Overall, there are fewer tax benefits for basic rate taxpayers, which are then hard to offset given the increased costs of finance and accountancy for companies.



Have you decided to invest in property and need to understand your mortgage options?

Cleerly's mortgage consultants understand both limited company and personal buy to let mortgages, and are on hand to help you to source the most suitable mortgage for your investment strategy. If you’re still wondering what the costs of finance may look like for landlords, speak with a Cleerly mortgage consultant today to discuss your individual requirements.

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