Landlords – Should You Set up a Limited Company?

One dilemma that Landlords face is whether or not to structure their affairs as Limited Company.

As a leading Bolton estate agent we know that the advantages and disadvantages of this (from a tax perspective) depends on the tax rate the individual Landlord is subjected for income tax purposes.

For example the Basic Income tax rate is 20% whereas the Higher Rate (for people with earnings over £50,270 is 40% and the Additional Rate (for earnings over £125,140) is 45%.

Corporation Tax is currently set at 19% but is increasing next year to 25%.

Therefore, those landlords who are ‘Basic Rate’ tax payers are unlikely to benefit from the Limited company route, whereas those who pay the Higher or Additional rate may wish to consider this route.

However a recent report suggests that Landlords who may be tempted by companies offering to reduce their tax bill have been warned that they could put their mortgage at risk and also fall foul of the taxman.

Tax Policy Associates (TPA), a not-for-profit company that aims to provide tax policy advice, said that some schemes promising to help landlords to set themselves up as private companies to get around tax rules could lead to them breaking the terms and conditions of their mortgage.

And last week HM Revenue & Customs issued guidance on a scheme “being marketed as a tax planning option” that offered landlords a so-called hybrid business model as a way of paying lower rates of tax. HMRC said that its view was that “this scheme does not work. People who use these arrangements may have to pay more than the tax they tried to avoid as well as interest.”

Several companies claim to offer solutions to this by helping landlords to set themselves up as incorporated companies, which have different tax rules. However, TPA said that landlords entering into these arrangements could end up in a “complex tax mess” because they could open themselves up to an HMRC investigation.

Dan Neidle, the founder of TPA and former head of tax at the multinational law firm Clifford Chance, said: “Many landlords — rightly or wrongly — see the increased tax burden on them as unfair. That has created a market for promoters selling magic solutions that claim to save landlords large amounts of tax. There are no magic solutions. We would advise steering clear of people that offer them.

“Tax should be boring, and the wisest approach is to keep it simple and do what everyone else is doing. Look for a firm with experienced people with tax qualifications, not a firm of flashy salesmen.”

HMRC said some schemes were “cynically marketed as clever ways to pay less tax. The truth is they rarely work in the way that promoters claim and it is the users that end up with big tax bills.

“Tax avoidance deprives the exchequer of funds to deliver vital public services. HMRC will take action where arrangements are designed or marketed to pay less tax than should be.”

The Tax Changes

Before changes to the tax regime (2015), landlords could deduct 100 per cent of their mortgage interest payments from their rental income before declaring it for tax purposes.

This was phased out and replaced with a basic rate tax relief credit of 20 per cent, leading to higher tax bills for many high-earning landlords who had previously got tax relief at their higher income tax rate. The chancellor at the time, George Osborne, said he wanted to create a “more level playing field between those buying a home to let and those buying a home to live in”.

Properties owned by limited companies, however, benefit still from higher tax relief, which has led many landlords to set themselves up as businesses. In 2021 about 47,400 new buy-to-let companies were established — a record number, according to data from Companies House.

That may be a good option for landlords who are starting out or expanding. But for those who already hold a large property portfolio in their own names, transferring into a limited company can be complicated and costly. The transfer is generally considered as a change of ownership, meaning that stamp duty would usually apply and you could also get a capital gains tax (CGT) bill.

Similarly, many mortgage lenders would not allow a property to be owned in this way, meaning that owners would need to remortgage. And mortgages for companies are typically more expensive than those for individuals.

TPA, have said that the terms and conditions of several large lenders specify that permission must be sought before mortgage holders transfer any interest in the property. It also said that the schemes could fail in their goal of eliminating stamp duty or CGT from the transfer. It also warned that HMRC could investigate such transfers, potentially triggering penalties.

UK Finance, the trade body that represents most leading lenders, said: “Transferring ownership of a property into a trust without informing your lender and seeking its consent would most likely be a breach of a mortgage’s terms and conditions.”

The tax office has six years to investigate if it thinks you have been careless in filling in your tax return, but this can be extended to 20 years in some cases.

Professional advice should always be sought before making any significant financial decisions.

Contact your local tax specialist accountant or property management company for further assistance.

To discuss the management of your rental properties, call the Purple Property Shop, a leading Bolton estate agent on 01204 598979 or email

Ref: Tax warning over landlords setting up as a company (


Show Sold STC
Show Let Agreed