Buy to Let

A buy to let mortgage is a specialist lending product designed for purchasing residential property that will be rented out to tenants. These mortgages differ from standard residential loans in several key ways: they are assessed primarily on expected rental income, typically require larger deposits, and carry slightly higher interest rates.

Landlords can take out a buy to let mortgage in their personal name or through a limited company. With a personal buy to let mortgage, you own the property directly and rental income counts as personal income, taxed at your marginal rate of 20%, 40%, or 45%. Since April 2020, you can no longer deduct mortgage interest from rental income before calculating tax. Instead, you receive a tax credit equal to 20% of your mortgage interest costs.

A limited company buy to let mortgage works differently. The company borrows the money and owns the property. Rental income goes to the company, and the company pays corporation tax on profits rather than you paying income tax personally. When you want to access profits, you take them as dividends or salary, each with its own tax implications.

Limited company buy to let mortgages are commonly used by landlords operating through SPVs (special purpose vehicles): companies set up solely for property investment purposes. Since tax changes made personal ownership less attractive for many landlords, the number of buy to let limited companies has reached over 400,000 in the UK, up from around 200,000 in mid-2020.

Who uses buy to let mortgages?

• Higher-rate taxpayers: Those who would pay 40% or 45% income tax on rental profits personally, but only 19-25% corporation tax through a company
• Portfolio builders: Landlords expanding a portfolio of properties who want to reinvest profits without triggering personal tax each time
• New investors: First-time landlords setting up a tax-efficient structure from day one
• Couples and families: Those who want flexibility in how shares are owned and profits distributed

Around 75% of new rental property purchases in England and Wales now go into a limited company structure, according to Hamptons.

The shift towards limited company ownership has been dramatic. Between the beginning of 2016 and the end of 2020, more companies were set up to hold buy to let properties than in the previous 50 years combined. This was driven by a specific tax change that fundamentally altered the economics of personal property ownership.

The Section 24 mortgage interest tax changes

Section 24 of the Finance Act 2015 changed how UK landlords are taxed on their buy to let properties. Before these changes came into full effect in April 2020, individual landlords could deduct 100% of their mortgage interest from rental income before calculating tax.

Instead, landlords now receive a tax credit equal to 20% of their mortgage interest costs, regardless of their income tax band. In practical terms, rental income is now taxed before mortgage interest is taken into account. This hit higher-rate taxpayers hardest.

Section 24 only affects individual landlords. If you own property through a limited company, you can still claim full mortgage interest relief.

Corporation tax versus income tax

For the 2025/26 tax year, corporation tax rates are: a small profits rate of 19% for companies with taxable profits of £50,000 or less, and a main rate of 25% for companies with taxable profits above £250,000. Companies with taxable profits between £50,001 and £250,000 pay the main rate reduced by marginal relief.

Compare this to personal income tax rates of 20% (basic rate), 40% (higher rate), or 45% (additional rate). For a higher-rate taxpayer, the difference between paying 40% income tax personally versus 19-25% corporation tax through a company is significant.

A practical tax comparison

Consider a rental property generating £24,000 annual income with £7,000 in mortgage interest:

• Limited company: Corporation tax at 19% on £17,000 (£24,000 minus £7,000) gives a tax bill of £3,230, leaving £13,770 profit
• Higher-rate taxpayer (personal): Income tax at 40% (£9,600) minus 20% tax relief on finance costs (£1,400) gives a tax bill of £8,200, leaving just £8,800 profit

That is a difference of nearly £5,000 in annual profit from a single property. Scale that across a portfolio and the numbers become very significant.

Before rushing to set up a company, understand that the comparison above does not tell the whole story. While the company route appears more tax-efficient, profits withdrawn as dividends are subject to dividend tax. Company buy to let mortgages can also have higher interest rates. Limited companies pay stamp duty on property purchases and do not benefit from the Capital Gains Tax allowance available to individuals.

Before deciding on a buy to let mortgage structure, it is worth comparing your two main options side by side. Each approach has distinct implications for tax, costs, and long-term planning.

When a limited company makes sense

Based on the tax calculations, a limited company structure tends to work best when:

• You are a higher-rate (40%) or additional-rate (45%) taxpayer who would pay significantly more income tax on rental profits
• You plan to grow your portfolio and want to reinvest rental profits without triggering personal tax
• You are buying new properties and can avoid the stamp duty and capital gains tax costs of transferring existing ones
• You have a long-term investment horizon and do not need to access all profits immediately
• You want flexibility in ownership, perhaps bringing in family members as shareholders for inheritance planning

When personal ownership makes more sense

Staying in your personal name often works better when:

• You are a basic-rate taxpayer and the corporation tax savings are minimal or non-existent
• You own properties outright without mortgages, so Section 24 does not affect you
• You need regular access to rental income and would face dividend tax taking it from a company
• You only have one or two properties and the admin costs of a company outweigh the benefits
• You are planning to sell soon and want access to the personal capital gains tax allowance

Some landlords use both structures: keeping existing properties in their personal name (avoiding transfer costs) while buying new properties through a company. This can work well but requires careful planning around lending criteria.

Buy to let mortgage lenders assess several factors when evaluating applications. Understanding these requirements before you apply will save time and avoid unnecessary credit searches.

Company structure requirements

For limited company applications, the company must be set up as an SPV with the sole purpose of buying, letting, and selling properties. Only SPVs with SIC codes 68100, 68209, or 68320 are typically accepted. Partnerships and LLPs are not accepted, and companies must be registered in England, Wales, or Scotland. SPVs are considered from day one of being set up: you do not need any trading history.

Director and shareholder requirements

All directors and shareholders with more than 20% shareholding, or anyone classified as a person of significant control, must be party to the mortgage. The maximum number of applicants is usually two, and they must have a combined 75% of shareholding and voting rights. All applicants will need to provide a personal guarantee and obtain independent legal advice.

Income requirements

Since SPVs are typically newly formed with no income history, lenders assess affordability based on the directors' personal income. A large portion of lenders will need to see two years of profitable accounts showing an income of £25,000 to £80,000 or more. Some lenders do not have a minimum taxable income threshold.

Lenders use an Interest Coverage Ratio (ICR) to check whether rental income covers mortgage payments with a safety margin. A combined ICR of 145% is typically required for personally owned properties and 125% for properties owned via a limited company. Lenders also apply a stress rate, testing whether rental income would still cover payments if interest rates rise.

Deposit requirements

Many lenders require a minimum deposit of 25% to 30% for buy to let mortgages, though deposits as low as 15% to 20% of the property value are available with some lenders. Typical requirements include a minimum 20% deposit for properties with EPC rating A to C, and a minimum 25% deposit for properties with EPC rating D to E. Higher deposits give you access to better rates and more lender options.

Property requirements

Standard residential properties are straightforward. Properties with more than one kitchen or designed for multiple occupancy require specialist HMO (House in Multiple Occupation) products. Non-standard construction, ex-local authority properties, high-rise flats, and properties with short leases all have specific criteria that vary by lender.

Limited company buy to let mortgages typically carry slightly higher interest rates and fees than personal buy to let mortgages, though the gap has narrowed as competition has increased. Some lenders now offer the same rates regardless of applicant type.

Current market rates

As of January 2026, typical limited company buy to let rates at 75% LTV with good credit are:

• 2-year fixed rates: from around 5.5% to 6.5% APR
• 5-year fixed rates: from around 5.2% to 6.0% APR

SPV mortgages typically carry rates 0.5% to 1% above standard mortgage rates due to additional complexity and paperwork. Fewer lenders are willing to offer mortgages at the maximum loan-to-value levels such as 85%, and more options are available at lower LTVs like 75% or 80%.

Setup costs to budget for

Beyond the mortgage rate, you need to budget for significant upfront costs. From October 2024, buy to let, second home owners, and limited companies pay a 5% surcharge on top of residential SDLT rates.

Including a 25% deposit of £75,000, you would need approximately £100,000 in total to complete the purchase of a £300,000 buy to let property through a limited company.

Ongoing costs

Running a limited company involves ongoing costs beyond the mortgage: accountancy fees of £300 to £1,000 annually for preparing and filing accounts and Corporation Tax returns, a £13 annual confirmation statement to Companies House, and potential business bank account fees of £5 to £15 monthly. These costs are tax-deductible as company expenses, but they do reduce your net return compared to personal ownership.

Like any financial decision, using a limited company for buy to let has genuine pros and cons. Here is a balanced view to help you decide.

Advantages

• Tax efficiency for higher-rate taxpayers: Paying corporation tax at 19-25% instead of income tax at 40-45% on rental income produces substantial savings, particularly for landlords with multiple properties
• Full mortgage interest relief: Unlike individual landlords who lost full relief under Section 24, limited companies can deduct mortgage interest as a business expense
• Profit retention for reinvestment: You can leave profits in the company to buy more properties without triggering personal tax, accelerating portfolio growth compared to taking profits personally
• Succession planning: Shares in the company can be transferred to family members more easily than personal property ownership, which can help with inheritance tax planning
• Portfolio growth: Many lenders view incorporated landlords as more professional, which can help when building larger portfolios

Disadvantages

• Higher mortgage rates and fees: SPV mortgages typically carry rates 0.5% to 1% above standard mortgage rates due to additional complexity
• Stamp duty on every purchase: Limited companies pay the standard rate plus the surcharge on every purchase with no first property exemption
• Extracting profits triggers additional tax: Dividend tax of 8.75%, 33.75%, or 39.35% applies when taking money out of the company, which can erode the tax advantage
• Administrative burden: Creating and maintaining an SPV involves registration fees, accountancy charges of £300 to £1,000 annually, and annual filing obligations with Companies House
• No personal CGT allowance: Individuals get an annual Capital Gains Tax allowance of £3,000, but companies do not receive this benefit
• Transfer costs for existing properties: Moving existing properties into a company triggers stamp duty on market value plus potential capital gains tax, which often makes transfer uneconomic

When the numbers do not work

Consider a basic-rate taxpayer with one unmortgaged property receiving £12,000 annual rent. Through personal ownership: £12,000 taxed at 20% equals £2,400 tax, leaving £9,600. Through a company: £12,000 taxed at 19% corporation tax equals £2,280, but taking £8,720 (above the £500 dividend allowance) as dividends at 8.75% adds £763, giving total tax of £3,043, plus accountancy fees. The company route only works in your favour when you are a higher-rate taxpayer, have significant mortgage interest to deduct, and do not need to extract all profits immediately.

Several common errors can cost landlords significant time and money. Avoiding these pitfalls will help protect your investment returns.

Choosing the wrong SIC code

If your company trades in something other than property, you can still get a buy to let mortgage, but your options are restricted to fewer specialist lenders. Always use a property-related SIC code (68209, 68100, or 68320) when setting up your SPV. If you have already registered with the wrong code, you can update it with Companies House before applying for a mortgage.

Misunderstanding the personal guarantee

Some landlords assume limited liability means they are protected from all losses. With buy to let mortgages, you are required to personally guarantee the debt. If the lender repossesses a property with the debt still outstanding, the person offering the personal guarantee will be liable for the remaining balance. The company structure still offers tax benefits, but do not assume you are protected from mortgage losses.

Underestimating extraction costs

Calculating the corporation tax saving is straightforward. What people forget is that getting money out of the company triggers additional tax. If you need to access all rental income for living expenses, the combined corporation tax plus dividend tax may exceed what you would pay with personal ownership. Run the full numbers before committing.

Applying directly instead of using a broker

Limited company buy to let is a specialist area. Not all lenders offer these products, and some that do only work through intermediaries. A specialist broker can find lenders you would not access directly and guide your application to avoid costly mistakes.

Rushing to incorporate without professional advice

The decision to use a limited company affects your tax position for years to come and is not easily reversed once you have bought properties through a company. Speaking to a property tax specialist before deciding is essential. The cost of a consultation (typically £300 to £500) is minimal compared to making a decision that costs thousands over time.