Limited Company vs Personal Property: The Ultimate Tax Calculation
The debate between buying UK investment property in a personal name versus inside a Special Purpose Vehicle (SPV) Limited Company is the most financially consequential decision a landlord will make. Make the right choice, and you protect tens of thousands in compound profits from HMRC. Make the wrong choice, and you will drown in higher mortgage arrangement fees, accountancy bills, and dual-layer taxation.
Here is the definitive mathematical breakdown comparing both ownership models under current tax rates.
1. The Primary Driver: Section 24 Mortgage Restrictions
Historically, landlords deducted mortgage interest from rental income like any ordinary business expense. Under Section 24 of the Finance (No. 2) Act 2015, individual landlords are prohibited from deducting finance costs. Instead, you are taxed on gross rental turnover minus direct running costs, receiving only a flat 20% basic rate tax credit on mortgage interest.
For a higher-rate (40%) or additional-rate (45%) taxpayer, this phantom turnover calculation routinely pushes personal taxable income into higher brackets, often taxing paper profits that do not exist in cash.
In contrast, Limited Companies are completely exempt from Section 24. An SPV company treats mortgage interest as a 100% tax-deductible expense against Corporation Tax.
2. Worked Tax Comparison: £30,000 Rental Income, £18,000 Mortgage Interest
Let's run the exact numbers on a higher-rate taxpayer (40% income tax band) with £30,000 gross rent, £2,000 running expenses, and £18,000 mortgage interest:
| Calculation Step | Personal Name (40% Taxpayer) | SPV Limited Company (19% CT) |
|---|---|---|
| Gross Rental Income | £30,000 | £30,000 |
| Allowable Expenses (repairs, agent) | -£2,000 | -£2,000 |
| Mortgage Interest Deducted | £0 (Restricted) | -£18,000 (Deductible) |
| Taxable Profit Basis | £28,000 | £10,000 |
| Tax Due Before Credits | £11,200 (40% of £28k) | £1,900 (19% Corporation Tax) |
| Section 24 Tax Credit (20% of £18k) | -£3,600 | N/A |
| Final Tax Bill to HMRC | £7,600 | £1,900 |
| Net Cash in Hand | £2,400 (£10,000 pre-tax cash - £7,600 tax) | £8,100 (£10,000 pre-tax cash - £1,900 tax) |
The Shocking Reality: In personal ownership, the landlord pays £7,600 in tax on a real pre-tax cash profit of £10,000—an effective tax rate of 76%! Inside the limited company, the tax is just £1,900, leaving £8,100 retained earnings to reinvest.
3. The Hidden Costs of Limited Company Ownership
While the tax savings look overwhelming, operating an SPV company is not free:
- Mortgage Interest Premium: BTL mortgage rates for limited companies are typically 0.5% to 1.0% higher than personal mortgages, with arrangement fees ranging from 1.5% to 3.0% of the loan.
- Accountancy & Confirmation Statements: Filing annual accounts, Corporation Tax CT600 returns, and Companies House confirmation statements costs £600 to £1,200 per year.
- Dividend Extraction Tax: Retained company profits must cross the corporate veil into your personal bank account. If extracted as dividends, higher-rate taxpayers pay 33.75% personal dividend tax on amounts above the £500 dividend allowance.
4. Decision Framework: Which Should You Choose?
- Choose Personal Name If: You are a permanent basic-rate taxpayer, do not anticipate your total taxable income exceeding £50,270, hold only 1 or 2 low-geared properties, or need immediate personal access to every penny of rental profit to live on.
- Choose Limited Company If: You are already a higher-rate (40%) or additional-rate (45%) taxpayer, plan to build a scalable portfolio of 3+ properties, intend to recycle profits into future purchases without personal extraction, or want to facilitate family inheritance planning through shares.
Guidance only. BrickCrunch provides general information, not financial, tax or legal advice. Our calculators give estimates only, using rates we verify against gov.uk — always confirm figures and your own position before acting.