Letting through a company

Letting property through your company can seem like a smart business move—and sometimes it is. But the tax implications are substantial, and getting them wrong can prove expensive. Whether you’re thinking of moving existing rental income into a company structure or setting up a lettings business from scratch, understanding the rules is essential. This guide covers the key considerations under current UK tax law.

How company lettings work

When you own rental property as an individual, you’re taxed on rental profits under self-assessment. Income tax, National Insurance contributions, and capital gains tax all apply at personal rates. A company structure works differently: the company itself is the landlord, owns the property, and is taxed as a separate legal entity.

The company pays corporation tax on profits at the main rate of 25% (for profits over £250,000 in the 2024/25 tax year), or 19% if profits stay below £50,000. Between £50,000 and £250,000, marginal relief applies. You, as the shareholder, then pay income tax on any dividends the company pays you, currently at 20% (basic rate) or 45% (additional rate), though the first £500 of dividend income is tax-free.

On the surface, this might look less favourable than individual ownership. But there are situations where a company structure genuinely makes sense—particularly if you’re building a substantial portfolio or have complex circumstances.

The tax treatment of rent and expenses

A lettings company deducts rental expenses before calculating taxable profit, just as an individual landlord does. Mortgage interest, repairs, utilities, professional fees, and advertising are all deductible. Importantly, since April 2020, you cannot claim a deduction for residential mortgage interest paid on properties let at an arm’s length rate—this applies to both individuals and companies. The residential property interest restriction limits most landlords here.

However, if your company borrows to purchase the property, the interest is typically deductible as a trading expense, provided the loan is genuinely connected to the lettings business. This is one area where corporate structures can offer advantages over personal ownership, though the rules are intricate and depend on the precise facts.

Stamp duty and CGT implications

A critical consideration is stamp duty land tax (SDLT). Purchasing residential property via a company often triggers the higher rates: an extra 5% surcharge applies on residential purchases over £500,000 through corporate bodies (or non-natural persons). For properties above £500,000, this adds significant cost upfront.

Conversely, transferring existing properties into a company is treated as a disposal for capital gains tax purposes. You’ll be deemed to sell the property at market value, triggering a CGT bill immediately. After 9 May 2017, this applies even to your main residence if you later let it out through the company. Relief for principal private residence can be complex here, so professional advice is vital before restructuring.

When you eventually sell the company shares, you’ll face CGT on the gain in share value, rather than CGT on the property itself. Depending on circumstances, this might be more or less tax-efficient—it depends largely on how much the property has appreciated and whether you can use your annual exemption (£3,000 for 2024/25).

Administration and ongoing costs

Running a lettings company involves more paperwork than personal ownership. You must file corporation tax returns (CT600) with Companies House, maintain proper accounting records, and potentially file additional disclosures if the company is involved in other activities. Accountancy and compliance costs are usually higher, though these are deductible business expenses.

You’ll also need to consider National Insurance. As a company director, you may pay Class 2 and Class 4 NICs on self-employment profits if the company is your main activity—or you might be an employee paying Class 1 contributions if you take a salary. The interaction with dividend tax can make this area surprisingly complex.

Making the right decision

Whether to let through a company depends on your specific circumstances: the property’s value, your other income, expansion plans, and the time horizon for holding the property. For a single modest property, personal ownership is usually simpler and cheaper. For a growing portfolio or higher-value properties, a company might offer genuine tax and asset protection benefits.

The key is not to rush. Restructuring is costly and not easily reversible, so taking proper advice beforehand is essential—far cheaper than rectifying a poor decision later.

For tailored advice, contact Severn Accounting — we’re here to help.