Landlord: Limited vs Partnership vs Self-Employment
Comparing the tax implications of each structure for property investors — including the Section 24 mortgage interest restriction and the case for incorporation.
Overview of the Three Structures
Property investors in the UK can hold buy-to-let property in three main ways: 1. Self-employed / Sole trader — owning property personally in your own name 2. Partnership — jointly owning with another individual (spouse, family member, business partner) 3. Limited company — holding property through a UK private limited company Each structure has fundamentally different tax treatment, and choosing the right one depends on your personal income, portfolio size, long-term plans and exit strategy.
Sole Trader / Individual Ownership
When you own property in your own name: • Rental income is added to your other income and taxed at your marginal rate (20%, 40%, or 45%) • Finance costs (mortgage interest) restricted to 20% tax credit — not fully deductible for higher/additional rate taxpayers • Capital gains on disposal taxed at 18% (basic rate) or 24% (higher rate) • Simple to set up and administer; no additional filing obligations beyond Self Assessment Suitable for: basic rate taxpayers with small portfolios who may sell in the near future.
Property Partnership
A property partnership can be used where two or more people own property together: • Income and gains are split between partners according to the partnership agreement • Each partner pays tax at their own marginal rate • Particularly useful for couples where one is a basic rate taxpayer — income can be allocated to the lower earner • Note: For married couples, HMRC assumes a 50/50 split unless a Form 17 declaration is filed Limited Liability Partnerships (LLPs) offer some protection but are complex to set up and run.
Limited Company (SPV)
Holding property in a Special Purpose Vehicle (SPV) limited company has become increasingly popular: • Rental profits taxed at Corporation Tax rates (19% on profits under £50,000; 25% above £250,000) • Mortgage interest fully deductible — not subject to the Section 24 restriction • Profits retained in the company can be reinvested without personal tax immediately • When dividends are extracted, dividend tax applies (8.75% basic; 33.75% higher; 39.35% additional rate) • Capital gains in a company are subject to Corporation Tax, not CGT Note: Most lenders charge higher buy-to-let mortgage rates for limited companies.
Section 24 — Mortgage Interest Restriction
Section 24 of the Finance Act 2015 (fully in force since April 2020) significantly impacted individual landlords: • Landlords can no longer deduct mortgage interest as a direct expense • Instead, a 20% tax credit is given on the lower of: finance costs, property profits, or adjusted total income • Higher and additional rate taxpayers bear the full brunt — effectively taxed on turnover rather than profit for the finance element • Companies are NOT subject to Section 24 — mortgage interest remains fully deductible This is the primary driver behind many landlords incorporating their portfolios.
Should You Incorporate?
Incorporating an existing portfolio is not straightforward: • Transferring properties to a company is a disposal for CGT purposes — potential CGT and SDLT charges on transfer • SDLT is payable on the market value of properties transferred (at full rates including the 5% surcharge) • Incorporation Relief may be available if letting qualifies as a business — but this is difficult to demonstrate • The benefits of incorporation are greater for higher-rate taxpayers with large portfolios and long investment horizons New investors building a portfolio from scratch may find the limited company structure more tax-efficient from the outset.
Furnished Holiday Lettings — New Rules
Important change from April 2025: The Furnished Holiday Lettings (FHL) regime was abolished. FHL properties are now taxed the same as any other rental property: • No longer eligible for Business Asset Disposal Relief on sale • No longer qualify for capital allowances on furniture and equipment • Pension contribution rules revert to standard rental income rules Existing FHL operators should review their position with an accountant.
Quick Comparison
| Item | Sole | Partner | Ltd Co |
|---|---|---|---|
| Tax on profits | Up to 45% | Up to 45% (split) | 19%–25% |
| Mortgage interest | 20% credit only | 20% credit only | Fully deductible |
| Admin burden | Low | Medium | High |
| CGT on sale | 18%/24% | 18%/24% | Corp Tax rate |
Not Sure Which Structure?
We can model the tax implications of each option for your specific portfolio and income level.
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