Why More Landlords Are Using Limited Companies to Cut Tax Bills

The buy-to-let market has changed dramatically over the years, with tax hikes and new regulations making it tougher for landlords to turn a profit. In response, a record number of landlords are moving their property investments into limited company structures to save on tax and protect their finances.

Why Are So Many Landlords Setting Up Limited Companies?

Recent analysis by Hamptons shows that as of February 2025, there are over 401,744 limited companies holding buy-to-let properties – a staggering 332% increase from 2016. In fact, buy-to-let companies now outnumber every other type of business registered at Companies House, including takeaways and hairdressers.

This surge is no coincidence—landlords are looking for smarter ways to reduce tax, protect assets, and keep their rental businesses profitable. But is this the right move for everyone?

The Benefits of Holding Property in a Limited Company

Lower Tax Rates

Individual landlords pay income tax at 20%, 40%, or 45%, while those using a company pay corporation tax at a maximum of 25% (and as low as 19% for smaller profits). This can result in significant savings for higher-rate taxpayers.

Full Mortgage Interest Relief

Since 2020, individual landlords can only claim a 20% tax credit on mortgage interest. Limited companies, however, can fully deduct mortgage interest as a business expense, reducing taxable profits and improving cash flow.

Better Asset Protection

Owning property through a company limits personal liability. If things go south, your personal assets are safeguarded, whereas individual landlords remain personally responsible for any debts.

Greater Tax Efficiency & Growth Potential

Profits inside a company can be retained, reinvested, or used to buy more properties without an immediate personal tax hit. This makes it easier to build a property portfolio over time.

The Downsides of Incorporating Your Buy-to-Let Portfolio

Double Taxation on Dividends While corporation tax is lower, taking profits out as dividends incurs an extra tax charge of 8.75%, 33.75%, or 39.35%, depending on your income level.

Higher Costs & Compliance Burden

Running a company means more accounting, reporting, and admin work, as well as additional fees for company formation, tax filings, and legal compliance.

Capital Gains Tax & Stamp Duty on Transfers

Moving personally owned properties into a company triggers capital gains tax (CGT) and potentially stamp duty, which could outweigh initial tax savings.

A Real-World Example: Tax Savings in Action

Let’s say a higher-rate taxpaying landlord earns £1,500 per month in rent and has a £750 per month mortgage interest payment.

In 2015, they would have paid £3,600 in tax on their £9,000 annual profit.

By 2020 and beyond, due to tax changes, their tax bill would have jumped to £5,400, a 50% increase.

What If This Property Was Held in a Limited Company?

If this landlord had operated through a limited company with profits under £50,000, corporation tax would be 19% instead of 40%. Instead of paying £5,400 in personal tax, the landlord’s company would only pay £1,710 in corporation tax on the same £9,000 profit. This results in a tax saving of £3,690 compared to personal ownership under the new tax rules. However, if the landlord wanted to withdraw profits as dividends, they would still face dividend tax, which should be factored into the overall strategy.

That said, keeping the profits inside the company can be a fantastic way to build up cash reserves for purchasing more properties. Alternatively, if the investor waits to withdraw dividends in a future tax year when their other income drops below the £50,270 tax threshold, they could draw funds at the lower dividend rate, potentially saving even more tax. However, it’s important to consider that dividend tax rates may change in the future, so long-term planning is essential.

Making Tax Digital: Another Change on the Horizon

From April 2026, landlords earning over £50,000 per year from rentals must switch to Making Tax Digital (MTD) for Income Tax, submitting quarterly digital tax returns instead of a single annual return. From April 2027, those earning over £30,000 will also be included.

With HMRC soon sending out letters to affected landlords, getting ahead of these changes is crucial. Many are already upgrading to MTD-compliant accounting software to avoid last-minute stress and penalties.

Where Are Limited Company Landlords Based?

This shift towards incorporation is especially popular in high-value property areas:

• London & Southeast – 43% of company landlords

• North West – 10%

• East of England – 9%

  
  

Landlords in these regions stand to gain the most from tax savings and portfolio expansion opportunities.

Should You Move Your Buy-to-Let Properties Into a Company?

There’s no one-size-fits-all answer—it depends on factors like:

✔️ Your current and future rental income

✔️ Your personal tax rate and financial goals

✔️ The impact of capital gains tax and stamp duty

✔️ The level of admin and costs you’re willing to take on

For some, incorporation can lead to significant tax savings and business growth opportunities. For others, the costs and complexity might outweigh the benefits.

Let’s Find the Best Strategy for You

Thinking about restructuring your buy-to-let portfolio? Not sure whether to stick with personal ownership or move to a company?

At Derbyshire Accountants, we help landlords navigate tax rules, structure their property investments efficiently, and keep more of their rental income. Let’s chat about your goals and find the best approach for you.

📞 Call us today or book a consultation to discuss how to make your property investments work smarter, not harder.

Charlotte Derbyshire