What are the current rules around getting a buy-to-let mortgage through a limited company vs. personally? Everyone seems to say limited company is better for tax now, but what about the mortgage side?
Quick Answer
Limited company Buy-to-Let mortgages, or SPV mortgages, typically have higher interest rates and stricter lending criteria than personal BTL mortgages, but offer tax advantages for some investors due to the absence of Section 24 restrictions.
## Understanding Limited Company vs. Personal Buy-to-Let Mortgages
Section 24, which became fully effective in April 2020, eliminated the ability for individual landlords to deduct mortgage interest from their rental income before calculating tax liability. This change significantly shifted the landscape, leading many investors to consider limited company structures for their buy-to-let (BTL) portfolios, primarily due to the ability of companies to deduct all finance costs as a business expense.
### How Does Section 24 Impact Personal Landlords?
For individual landlords, Section 24 means that rental income is taxed before accounting for mortgage interest. Instead of deducting interest, individual landlords receive a 20% tax credit on their finance costs. This can push basic rate taxpayers into the higher rate bracket, as their gross rental income is used for tax calculation, not their net profit after interest. For example, a property generating £1,000 in monthly rent with £700 in mortgage interest would see an individual landlord taxed on the full £1,000, receiving only a £140 tax credit (20% of £700) instead of deducting the £700 directly.
### What are the Tax Advantages of a Limited Company?
Limited companies, often Special Purpose Vehicles (SPVs), can fully deduct mortgage interest and other finance costs from their rental income before calculating corporation tax. Corporation Tax is 25% for profits over £250k, 19% for profits under £50k, with marginal relief between these thresholds. This direct deduction can result in a lower taxable profit compared to an individual, especially for higher-rate taxpayers. Furthermore, profits can be retained within the company or extracted as dividends, which offers flexibility in personal tax planning. For example, a limited company renting a property for £1,000 per month with £700 in interest would only pay Corporation Tax on the £300 profit, rather than the individual being taxed on the £1,000.
### Do Mortgage Lenders Treat Limited Companies Differently?
Yes, lenders generally view limited company BTL mortgages as a distinct product type compared to personal BTL mortgages. As of August 2026, the Bank of England base rate is 3.75%, influencing all mortgage products. Limited company BTL mortgages often carry higher arrangement fees and slightly higher interest rates than personal BTL mortgages, reflecting the perceived additional complexity and risk for lenders. Typical BTL fixes vary by lender and product; always compare the latest rates. Lenders also perform an Interest Cover Ratio (ICR) stress test, commonly at 125% rental coverage at a 5.5% notional pay rate, though many use 140% or higher, which can affect borrowing capacity.
### Are There Specific Lending Criteria for Limited Companies?
Lenders assess the SPV itself, its directors, and the underlying property. They will typically require the directors to provide personal guarantees, meaning the directors are personally liable if the company defaults. Some lenders may have stricter criteria regarding the company's age or its directors' experience in property investment. While the EPC minimum rating for rentals is currently E, future minimums of C-equivalent by 1 October 2030 are also factored into lender assessments, as properties needing significant upgrades might be deemed higher risk.
### What are the Costs Associated with Limited Company Mortgages?
Beyond potentially higher interest rates, limited company mortgages often have higher product fees, sometimes ranging from 1.5% to 3% of the loan amount, compared to 1% to 2% for personal BTLs. There are also legal costs for setting up the company and potentially higher legal fees for the mortgage transaction itself. The ongoing administrative costs of running a limited company, such as annual accounts filing and company secretarial services, also need to be considered. For instance, a £200,000 limited company BTL mortgage could incur product fees of £4,000 (2%) alongside legal and setup costs, making the initial outlay higher.
## Benefits of Limited Company Mortgages
* **Tax Efficiency:** Full deduction of mortgage interest against rental income, leading to lower Corporation Tax. This is a significant advantage over individual taxation under Section 24.
* **Succession Planning:** Easier transfer of company shares than direct property ownership, which can aid in inheritance planning.
* **Asset Protection:** Limited liability structure can offer a layer of protection for personal assets, though personal guarantees are often required by lenders.
## Potential Drawbacks of Limited Company Mortgages
* **Higher Costs:** Typically higher mortgage rates, product fees, and legal/setup costs compared to personal BTLs.
* **Administrative Burden:** Increased compliance requirements, including filing annual accounts with Companies House and HMRC, and potential need for an accountant.
* **Personal Guarantees:** Directors are usually required to provide personal guarantees, mitigating the limited liability aspect for mortgage debt.
## Investor Rule of Thumb
While a limited company structure offers significant tax advantages by allowing full mortgage interest deduction, it typically comes with higher borrowing costs and administrative overhead, necessitating a careful assessment of net cash flow.
## What This Means For You
Understanding the interplay between tax rules like Section 24 and the specifics of limited company vs. personal mortgage products is critical for optimising your property portfolio's profitability. The decision to use a limited company is complex, requiring a clear analysis of your specific financial situation, portfolio size, and long-term goals. If you're weighing up these structures for your next acquisition, this is exactly the type of detailed financial modelling and strategic planning we explore within Property Legacy Education, helping you make an informed choice that maximises your returns and mitigates risks.
Steven's Take
The move to a limited company structure is primarily driven by Section 24 for tax efficiency, especially if you're a higher-rate taxpayer. However, you must factor in the mortgage side. Rates are currently 0.5-1% higher for limited company products, and exit routes for funds can involve dividend tax. It's crucial to weigh the potentially higher mortgage costs and administrative burden against the substantial tax savings on rental income not subjected to Section 24. This isn't a simple choice; it requires financial modelling based on your specific circumstances.
What You Can Do Next
1. Consult a Mortgage Broker: Engage a specialist BTL mortgage broker (search 'limited company BTL mortgage broker UK') experienced with SPV lending. They can provide current rates for both personal and limited company options and assess your eligibility.
2. Seek Tax Advice: Speak to a property tax specialist accountant (find one via ICAEW.com or ACCA.org.uk) to model the tax implications for your personal income tax bracket versus a limited company structure, considering Corporation Tax and dividend tax.
3. Review Lender Criteria: Understand that each lender has different criteria for limited companies, including minimum loan amounts, maximum LTVs, and director experience requirements. This will be provided by your mortgage broker.
4. Evaluate Exit Strategy: Consider how you plan to extract profits from a limited company. While Corporation Tax is lower, dividend tax is applied to profits withdrawn, which impacts overall net returns. Discuss this with your accountant.
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