Limited company mortgages: Key facts

If you are thinking about purchasing a buy to let property as a limited company, here are some key facts to consider:

  • Mortgage rates: Interest rates on limited company mortgages can be higher than standard buy to let products.
  • Stamp Duty: Normally similar levels of Stamp Duty (Land and Buildings Transaction Tax in Scotland, or Land Transaction Tax in Wales) will apply.
  • Tax Relief: Finance costs, including mortgage interest, remain tax deductible for limited company landlords.
  • Corporation Tax: Limited company landlords pay Corporation Tax (not income tax) on their rental income. The current rate of Corporation Tax is 19%.
  • Capital Gains: Limited company landlords pay Corporation Tax on their Capital Gains and there is no tax-free allowance. Lower rate taxpayers will pay 18% and higher rate taxpayers pay 28%. Please note, the gain can cross tax rates depending on your circumstances.
  • Transfer of Property: By doing this you may have to pay Stamp Duty and Capital Gains Tax.

Getting professional tax advice will help you to find out the most appropriate structure for your circumstances.

Mortgages are secured on your property. You could lose your property if you do not keep up payments on your mortgage.

Example scenario for 2020/21

Here we compare limited company cashflow to personal owners in the basic and higher rate tax brackets. Visit the Government website for the latest information on Income Tax Rates.

In this scenario, a basic rate taxpayer is better off owning a buy to let property as an individual, but a higher rate taxpayer would get a greater return operating under a limited company.

If you scale this across a large portfolio and over a longer time frame, the financial impact could be even bigger.

Cashflow types Basic rate taxpayer Higher rate taxpayer Limited company
Gross monthly rent from buy to let property
£10,000
£10,000
£10,000
Mortgage interest rate (example rate)
£2,500
£2,500
£3,500
Monthly mortgage cost (with a £100k loan)
£2,500
£2,500
£3,500
Running costs
£2,000
£2,000
£2,000
Income before tax deducted
 £8,000
 £8,000
 £4,500
Tax rate
 20%
 40%
 19%
Gross tax (before mortgage interest relief)
 £1,600
 £3,200
Not applicable
Mortgage interest relief
£500
£500
Not applicable
Tax payable
£1,100
£2,700
£855
Net profit
£4,400
£2,800
£3,645

These calculations are based on current tax rates. This example scenario is illustrative only.

The Mortgage interest relief is calculated at the basic rate of tax multiplied by the mortgage interest and other finance costs paid. The basic rate is currently 20%.

Profit extraction

You can extract profit from a limited company in multiple ways, including dividends, salary, pension contribution and repayment of a director’s loan, if applicable.

This example scenario uses dividends to extract a net profit of £3,645.

Currently, each director is entitled to a yearly dividend allowance of £2,000 before they have to pay tax. After that, the profit is taxed at different rates depending on whether they are a basic, higher or an additional rate taxpayer.

Extract flow 2 shareholders / directors 1 basic rate taxpayer
shareholder / director
1 higher rate taxpayer
shareholder / director
Value of dividend
£3,645
£3,645
£3,645
Dividend allowance
£4,000
£2,000
£2,000
Taxable dividend
£0
£1,645
£1,645
Dividend tax rate
Not applicable
7.5%
32.5%
Dividend tax payable
Not applicable
£123
£535
Net income
£3,645
£3,522
£3,110

These calculations are based on current dividend allowance and dividend tax rates. This example scenario is illustrative only.

Our Limited Company mortgages

Visit our Limited Company mortgages page to find out more and see if you are eligible.