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How Does Tax Work When Purchasing Through a Limited Company?

When you purchase property through a limited company, the tax obligations can differ slightly. Rather than being taxed on your rental income - and therefore your personal income - you will instead pay corporation tax. If you're unsure how this works, don't worry. The team at Tyrone Mortgages is happy to break it down for you:

Corporation Tax: A limited company pays corporation tax on its profits. As of 2024, the tax rate is 25% for profits over £250,000, and a 19% rate is applied for profits below this amount. Before paying corporation tax, a limited company can deduct allowable business expenses to reduce their bill.

Stamp Duty Land Tax (SDLT): Like individuals, limited companies are required to pay an additional 3% surcharge on Stamp Duty Land Tax in Northern Ireland and the rest of the UK. In cases where a commercial property is purchased, the SDLT rates are typically lower.

Capital Gains Tax (CGT): When selling a property at a profit, a limited company does not pay Capital Gains Tax. Instead, the gains will be subject to corporation tax. Meanwhile if shareholders in the limited company sell their shares, the individual will pay CGT on the profit of the sale of those shares.

Dividend Tax: After corporation tax has been paid on profits, shareholders can withdraw the remaining profit as dividends - which are subject to dividend tax. These rates are 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.

Inheritance Tax: If a buy-to-let property is held in a limited company, the shares in the company will be part of the shareholder's estate for inheritance tax purposes, which can offer more flexibility in terms of succession planning compared to an individual owning the property.

Disclaimer: This guide has been produced for information purposes only. As a mortgage broker, we are not able to offer tax advice.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

What Is The Difference Between a Limited Company and an SPV?

While both a limited company and a Special Purpose Vehicle (SPV) allow you to purchase property under a company name, there are key distinctions between the two. A limited company can engage in multiple business activities—such as trading or offering services—alongside property ownership. This gives landlords the flexibility to manage various income streams within the same company.

An SPV, on the other hand, is a type of limited company specifically set up for holding property. It does not engage in any other business activity apart from property investment and management. As a result, SPVs are often seen as more straightforward for lenders to assess, given the focus on property. SPVs typically enjoy a simpler lending process as mortgage providers are more familiar with these setups. For landlords primarily focused on growing their rental portfolio without other business activities, an SPV could be the preferred option.

However, each option has its benefits depending on your broader business objectives. For personalised advice on whether an SPV or a more general limited company is better for your circumstances, the team at Tyrone Mortgages is ready to help.

Are Mortgage Interest Rates Higher for Limited Companies?

In general, mortgage interest rates for limited companies tend to be higher than those offered to individual landlords. This is largely due to the perceived higher risk of lending to a company instead of an individual. Lenders may charge a premium to offset this risk, especially if the company is newly established or if the properties being purchased carry a significant level of borrowing.

That said, the slight increase in interest rates may be outweighed by the tax advantages and protection a limited company structure offers, especially for landlords with larger portfolios. Additionally, mortgage availability for limited companies has grown significantly in recent years, leading to more competitive rates and products on the market.

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