Quick Answer: On £18,000 of rent with £3,000 of expenses and £6,000 of mortgage interest, alongside a £40,000 salary, a limited company leaves you £306.07 better off per year. Personally you pay £2,746 and keep £6,254; through a company you pay £1,710 of Corporation Tax plus £729.93 of dividend tax and keep £6,560.07. The gap widens with more borrowing and reverses entirely if there is no mortgage.
Overview
Section 24 removed mortgage interest as a deductible expense for individual landlords, but not for companies. That single asymmetry is why so many landlords have incorporated since 2017.
It is not a one-way argument. A company deducts interest in full and pays Corporation Tax at 19% on small profits, but extracting the money means a second layer of tax as a dividend. Whether the company wins depends almost entirely on how much interest you pay.
On the default figures the company is ahead by £306 a year. Remove the mortgage and the company is £626 worse off, because there is no interest restriction to escape and the double tax layer is pure cost.
How This Is Calculated
Personal ownership. Property profit is rent less expenses, with interest excluded. That profit is added to your other income and taxed at your marginal rate. A tax reduction of 20% of the lowest of the finance costs, the property profit, or adjusted total income is then deducted.
Company ownership. The company deducts all costs including interest:
Corporation Tax is charged at 19% up to £50,000 of profit, 25% above £250,000, with Marginal Relief between. If profit is extracted, the post-tax amount is a dividend, taxed on you at 10.75%, 35.75% or 39.35% after the £500 allowance, stacked on your other income.
The comparison is net cash in your hand under each route.
Worked Example
£18,000 rent, £3,000 expenses, £6,000 interest, £40,000 salary:
Personally: - Taxable profit £15,000, interest not deducted - Tax, after the £1,200 section 24 reduction: £2,746 - Net cash: £18,000 − £3,000 − £6,000 − £2,746 = £6,254
Through a company: - Company profit: £18,000 − £3,000 − £6,000 = £9,000 - Corporation Tax at 19%: £1,710, leaving £7,290 - Extracted as a dividend: £500 allowance, then £6,790 at 10.75% = £729.93 - Net cash: £6,560.07
Company advantage: £306.07 a year.
With £12,000 of interest instead: the advantage widens to £768.52, because the company deducts all of it while you personally get relief on only 20%.
With no mortgage: the company is £626.38 worse off. There is no interest restriction to escape, and Corporation Tax followed by dividend tax simply costs more than income tax alone.
Retaining profit in the company rather than extracting it shows a £1,036 advantage, but that only defers the dividend tax rather than avoiding it.
What This Does Not Account For
- The cost of incorporating an existing property. Transferring a property you already own is a disposal for Capital Gains Tax and a purchase for Stamp Duty, including the 5% surcharge. These one-off costs frequently exceed many years of annual saving and are the main reason incorporation is often not worth it.
- Higher mortgage rates for companies. Limited company buy-to-let products typically carry higher rates and fees, which can erase the tax advantage entirely.
- Running costs. Accounts, corporation tax returns, confirmation statements and an accountant, typically several hundred pounds a year.
- Directors' loan accounts, which often allow tax-free extraction of funds originally introduced, materially changing the early-year picture.
- Incorporation relief and section 162, which can defer the CGT charge where a genuine property business is transferred.
- Annual Tax on Enveloped Dwellings for high-value residential property held corporately.
- Inheritance tax, where the two structures differ significantly.
- Mortgage interest relief within the company being restricted by the corporate interest restriction, which applies only to very large groups.
Common Pitfalls
- Comparing only the annual tax. The recurring saving here is a few hundred pounds. Incorporating an existing property can cost tens of thousands in CGT and Stamp Duty. The payback period is often decades.
- Assuming a company is always better. With no mortgage it is usually worse, because the double tax layer has no interest restriction to offset it.
- Forgetting the second layer of tax. Corporation Tax at 19% looks attractive next to 40% income tax, but the money is not yours until it is extracted, and extraction is taxed again.
- Ignoring higher company mortgage rates. A rate premium of even a quarter of a point can outweigh the tax saving on a typical loan.
- Treating retained profit as a saving. It defers dividend tax rather than avoiding it, unless the money genuinely stays invested in the company long term.
- Overlooking Corporation Tax at the margin. Above £50,000 of profit the effective rate rises to 26.5% through the Marginal Relief band, which narrows the company advantage.
Frequently Asked Questions
Is a limited company better for buy-to-let?
Why does the company pay tax twice?
Should I move my existing properties into a company?
What about higher mortgage rates for companies?
Does it help to leave the profit in the company?
What if my company profits exceed £50,000?
Sources
- HMRC Property Income Manual PIM2058 -- the section 24 finance cost restriction for individuals
- GOV.UK: "Corporation Tax rates and reliefs" and HMRC CTM03925 -- the 19% small profits rate, 25% main rate and Marginal Relief
- GOV.UK: "Tax on dividends" -- the £500 allowance and the 10.75% / 35.75% / 39.35% rates
- GOV.UK: "Stamp Duty Land Tax: buying an additional residential property" -- the 5% surcharge relevant to incorporating an existing portfolio
- All figures verified on 30 August 2026 and mirrored in engine/tables/2026/uk-2026-27.json