Property Company vs Personal Ownership: Tax Comparison

The Key Question

With Section 24 restricting mortgage interest relief for individual landlords, many are considering whether holding property through a limited company is more tax-efficient. The answer depends on your circumstances, income level, and plans for the portfolio.

Personal Ownership

Income Tax

Rental profit is added to your other income and taxed at your marginal rate (20%, 40%, or 45%). Mortgage interest is not deductible — you receive a 20% tax credit instead.

Capital Gains Tax

When you sell, gains are taxed at 18% (basic rate) or 24% (higher rate), with a £3,000 annual exemption.

Advantages

• Simpler to set up and administer
• No company filing requirements
• CGT rates on disposal are lower than income tax rates
• Private Residence Relief if you ever lived in the property
• No extraction tax — rental profits go directly to you

Disadvantages

• Section 24 increases effective tax for higher rate taxpayers
• Rental income inflates your personal income (affecting Personal Allowance and child benefit)
• Higher marginal tax rates apply

Company Ownership

Corporation Tax

Rental profit is subject to Corporation Tax at 25%. Mortgage interest IS fully deductible as a business expense (Section 24 does not apply to companies).

Extracting Profits

To get money out of the company, you take dividends or salary. Dividends are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate) — on top of the Corporation Tax already paid.

Capital Gains

When the company sells a property, the gain is subject to Corporation Tax at 25%. When you then extract the proceeds, further dividend tax applies. This "double taxation" can make company disposals more expensive than personal sales.

Advantages

• Full mortgage interest deduction
• Corporation Tax rate (25%) may be lower than personal higher/additional rates
• Flexibility in profit extraction timing
• Can retain profits in the company for reinvestment

Disadvantages

• More expensive to set up and maintain (accounting, filings, compliance)
• Higher Stamp Duty (5% surcharge applies)
• Double taxation on property sales
• More complex and expensive mortgage products
• Less flexibility in personal use of funds

When Company Ownership Is Better

Company ownership tends to be more beneficial if:

• You are a higher rate taxpayer
• You have significant mortgage debt (and therefore benefit from full interest deduction)
• You plan to reinvest profits rather than extract them
• You are building a portfolio long-term
• You are acquiring new properties (easier to start with company ownership than to transfer existing properties)

When Personal Ownership Is Better

Personal ownership tends to be better if:

• You are a basic rate taxpayer
• You have little or no mortgage debt
• You plan to sell properties in the near to medium term
• You want simplicity
• You have few properties

Transferring Existing Properties

Moving existing properties from personal to company ownership incurs:

• Stamp Duty at market value (including the 5% surcharge)
• Potential CGT on the deemed disposal
• Legal and professional fees

These costs are significant and often make transfer uneconomical for existing portfolios. The calculation must be done carefully.

Compare your options with clear financial data from Accounted.

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