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Investing in BTL (Buy to Let) property through a limited company

Investing in BTL (Buy to Let) property through a limited company


Post the 2017 budget, as there was a redemption on tax for interest on BTL (Buy-to-Let) mortgages, there has been a tremendous increase in landlords purchasing Buy-To-Let (BTL) investments under the name of the limited company rather than their personal name. This also changed the cut-off of the net rental income on which the mortgage interest was calculated. Initially the rule meant that the higher taxpayers could actually claim relief at a higher rate of 40-45 percent, which post 2017, for the next 4 years reduced to 20 percent.

Designed to let out on rent, for BTL properties a specific mortgage loan has been designed. While there are two ways through which buy-to-let property can be owned, one through using the personal name and the second through a limited company.

Reason for growth in the limited company

For a limited company, income tax is never paid as a single entity rather is paid as a corporation tax. This corporation tax was at 19 percent in the year 2017, at present it is 18 percent and until April 2019 it will be reduced till 17 percent. Therefore, investing in BTL property through a limited company is much more beneficial in comparison to investing it under a personal name as there are tax advantages for sure that a limited company can provide for a BTL property.

There are many more advantages in investing through a limited company.

  • A £2,000 tax-free dividend allowance is being given to individuals since April 2016, which ends up providing a tax-free dividend income from the property that has been invested in.
  • If you decide to re-invest the earned profit, you won’t need to pay any income tax if you choose a limited company. While the corporation tax is payable on trading profits, but it is lower than higher income tax rate. 

Major reasons for not doing investment through limited companies

Despite the fact that you can get tax redemption, there are certainly other factors that needs to be taken into consideration before investing in BTL property through limited companies.

Questionable tax saving

How much profit a company will make is unpredictable and hence distributing the company profit to corporation tax for the purchase of invested property, and not giving any amount to its shareholders will not generate any form of tax saving if the owner falls under the category of the basic ratepayer. However in case if the investment turns out complete failure then no savings are there veritably in the form of tax.

Capital gains tax issue

If the owner wishes to invest through limited company then he/she may lose out on ample of benefits that are available only under the personal name. In addition to this, when the respective property is sold out the owner may end up paying double tax as the company is supposed to pay on capital gain and furthermore if the owner wishes to extract the profit form company than again he/she is supposed to pay personal tax on gain arising or income.

Contractual risks

Although there is certain risk element involved in every business and investing in BTL property through limited companies increases the risk element little more. The owner can be sued up for acute negligence as the limited company shall not be entitled to following professional indemnity policy. If any legal action is taken against the respective limited company than owner may lose out on all the assets held by the company and entire business can come to standstill.

P11D/Benefit for leisure issues

If any owner utilises any benefits that are personal in nature from the company’s ownership like going on holiday, occupation etc. than the person is entitled to pay the tax for benefit in kind. Contrary to this, no such taxes one has to pay if he/she owns the property personally.

Business climate

After IR35, came into the picture the settlement legislation (earlier known by name Section 660), has increased lot of norms and regulations for small-scale limited companies and has impacted in the form of the downfall of the average lifespan of single person Consultancy Company. In the scenarios where the owner wishes to completely dissolve the company than it can be a cumbersome task for him/her. Before the dissolution can take place, the property is supposed to be transferred out of the company so that capital gains can be crystallised. In addition to this, the owner has to bear stamp duty cost and other legal costs of transfer.

Summary of Pros and Cons for investing in BTL property through a limited company


  • No tax on dividend exists for withdrawals up to £5,000.
  • Relatively higher tax relief is there in comparison to investment with a personal
  • Mortgage interest payments shall be considered as a company
  • No income tax shall be applicable if reinvesting of profits is done in order to secure further properties.
  • All sort of personal funds can be drawn back out of the company.


  • Capital gain tax issues shall persist.
  • Overhead and other transfer costs are increased.
  • Higher mortgage rates as the majority of lenders will charge higher interest rates for limited comparison in comparison to the individual
  • Very few options available for lenders and mortgage as only a few lenders offer mortgages for limited companies. This ultimately increases the mortgage rates as very few options are available.

Have more questions on this subject? Our experts can answer it for you! email us at info@targetaccounting.co.uk