400k buy to let owners use limited companies to reduce tax bill

Sara White, Editor, Business & Accountancy Daily

The combination of high tax bills and interest rates has seen a record number of buy to let landlords shift to limited company structures to hold their property portfolios

The number of companies set up to hold buy to let property hit a record 401,744 in February 2025, up by 332% over the past nine years from only 92,975 incorporated landlords in 2016, showed analysis of Companies House data by Hamptons.

Companies House now has more registered buy to let companies than any other type of business, with four times as many company landlords as takeaways and hairdressers.

The restructuring has accelerated following changes to tax rules first introduced in 2016 by then chancellor George Osborne, which saw the virtual phasing out of full mortgage interest rate relief for landlords.

Aneisha Beveride, head of research at estate agents Hamptons, noted: ‘The limited company is now the structure of choice for the next generation of investors. We estimate that 70-75% of new buy to let purchases now go into a company structure, a figure that has been steadily growing.

‘Current tax rules mean that most, although not all, new investors find themselves better off in a company structure than owning an investment property in their own name.

‘Under the current system, companies can still deduct mortgage interest as a business expense before calculating their tax liability. This contrasts sharply with the situation for individual landlords, who since 2020 have been restricted to a 20% tax credit on mortgage interest payments.’

The tax pain particularly hits higher rate taxpayers, who fall into the 40% tax bracket.

A higher rate taxpaying landlord receiving £1,000 per month in rent while paying £500 per month in mortgage interest would have paid £2,400 in tax on their £6,000 profit in 2015. By 2020, under the new rules, the same landlord would pay £3,600 in tax, a 50% increase.

Pros and cons of corporate structure

But there are pros and cons for landlords considering whether to use a company rather than direct ownership.

Satwaki Chanda, tax lawyer and contributor to Croner-i Tax Weekly, said: ‘The main advantage in setting up a company is that the shareholders’ liability is limited to any amounts unpaid on their share capital.

‘So if the business folds, it is the company, not the investors, that end up having to foot the bill. By contrast, an individual landlord holding the properties directly is not so lucky if the venture goes pear-shaped – they remain fully liable for all the debts of the business and is at personal risk of going bankrupt.’

In terms of tax rates, a company is, on the surface, a better proposition, stressed Chanda.

This is because the main rate of corporation tax is set at 25% for companies with profits of at least £250,000, applying to both income profits and capital gains. Where profits are less than this figure, the rate varies from 19–25%.

By contrast, individual landlords are subject to rates of 20% (basic), 40% (higher) and 45% (additional) on their rental profits and 24% on capital gains.

Chanda added: ‘While the corporate rates appear more attractive, one needs to bear in mind that there is an additional layer of tax payable by shareholders when the company pays out rental profits by way of dividend.

‘Dividends are taxed at rates of 8.75%/33.75%/39.35% and the additional tax can have an adverse effect on the overall tax position when compared to that of an individual landlord.’

Making Tax Digital for landlords

From April 2026, landlords will also face added red tape with changes to the tax rules with the introduction of Making Tax Digital for Income Tax, which will require taxpayers with rental income over £50,000 a year forced to file quarterly returns with HMRC. This will be rolled out to those earning £30,000 in April 2027.

Next month HMRC will send letters to landlords whose 2023-24 self assessment tax return showed their rental income was close to, or over, £50,000 telling them they may need to use MTD from April 2026. This means the first MTD quarterly report would have to be filed with HMRC by 1 July 2026.

Accountants have also been told to start advising clients of the upcoming changes, which will require an overhaul of tax reporting and inevitably increase costs for landlords. It is also possible for accountancy firms to join the beta trial to test out the system with their client landlords.

Hamptons data showed that the majority of landlords holding properties in companies are located in London and the southeast, accounting for 43% of rentals. This was followed by the north west at 10% and east of England with 9%.