Buying as an individual vs Ltd Company
Buying property as an individual and through a limited company has distinct differences. Your circumstance will dictate how these differences affect you and which option works for you. The differences are:
- Tax differences:
- As an individual: Rental income is taxed as personal income, which can be at basic, higher or additional rates depending on your other income. You can deduct allowable expenses EXCEPT mortgage interest where tax relief is only available at the basic rate.
- As a Limited Company: Corporation tax is payable on any profits. Currently, these rates are lower than higher personal tax rates. Additionally, you can deduct all expenses before calculating profits, including mortgage interest.
- Financing:
- As an individual: Personal mortgages are usually more accessible, but may face stricter lending criteria based on your income and credit score.
- As a Limited Company: Buy-to-let mortgages for companies may have higher interest rates/charges and require larger deposits, but they can allow for more flexible financing options.
- Capital Gains Tax (CGT)
- As an individual: When selling a property, individuals may be liable for CGT.
- As a Limited Company: Companies pay corporation tax on profits, including capital gains.
- Admin Burden
- As an individual: Generally less paperwork and compliance requirements compared to running a company. This is subject to change when the new MTD rules come in over 2026 year onwards
- As a Limited Company: Involves more regulations, including annual accounts, tax returns, and compliance with Companies House requirements.
Pros and Cons of owning a BTL
Pros:
- Tax Efficiency: Potentially lower tax rates.
- Finance costs allowable: Mortgage interest is an allowable expenses and receives full tax relief.
- Inheritance Planning: Shares in a company can be transferred, potentially minimizing inheritance tax liabilities.
Cons:
- Higher Costs: Setting up and maintaining a limited company involves additional costs, such as registration fees, accounting, and legal costs.
- Mortgage Restrictions: Some lenders may offer limited mortgage products for companies, which can lead to higher interest rates or stricter terms.
Pros:
- Simplicity: Managing rental property as an individual is generally straightforward, with fewer regulatory requirements compared to a LTD company.
- Easier Financing: Individual borrowers may have access to a wider range of mortgage products and potentially lower interest rates.
Cons:
- Personal Liability: You are personally liable for any debts or legal issues related to the property.
- Limited Mortgage relief: Mortgage interest tax relief is limited to the basic rate.
This information is correct as of March 2025.