A dramatic shift is taking place in the UK’s property investment landscape. A staggering 401,744 buy-to-let (BTL) landlords have now moved their properties into limited companies —a 332% increase since 2016!

But why?

The answer lies in rising tax burdens, soaring interest rates, and a game-changing tax loophole that corporate structures offer. Let’s break down this trend and explore whether it’s the right move for you.

Why 400K Buy-to-Let Landlords Are Switching to Limited Companies – And Should You?

The Rise of the Limited Company Landlord

According to Companies House data, there are now more buy-to-let companies than any other business type in the UK. That’s four times more than takeaways and hairdressers combined! The tax changes introduced by George Osborne in 2016 set the stage for this shift, phasing out full mortgage interest relief for individual landlords.

With personal tax bills skyrocketing, landlords have been left scrambling for a solution.

Enter: the limited company structure. This tax-efficient setup allows landlords to deduct mortgage interest as a business expense—a major advantage over personal ownership, where only a 20% tax credit is allowed.

How Much Tax Can Landlords Save?

For landlords in the higher tax bracket (40%), the savings can be significant. Let’s say a landlord earns £1,000 per month in rent (£12,000 annually) and pays £500 per month in mortgage interest (£6,000 annually):

Individual Landlord Taxation:

Rental Income: £12,000

Mortgage Interest Deduction: Not allowed, only a 20% tax credit

Taxable Income: £12,000

Tax Due (40% rate): £4,800

Tax Credit (20% on £6,000 interest): £1,200

Final Tax Payable: £3,600

Limited Company Taxation:

Rental Income: £12,000

Mortgage Interest Deduction: Fully deductible (£6,000)

Taxable Income: £6,000

Corporation Tax (19-25%): £1,140 - £1,500

Incorporation results in a lower tax liability at the corporate level. However, landlords must also consider dividend taxation (8.75% to 39.35%) when withdrawing profits, which can impact overall savings.

Noting the Pros and Cons of Incorporation

✅ Advantages of Using a Limited Company:

Lower tax rates (corporation tax vs. higher personal income tax)

Full mortgage interest relief (unavailable to individual landlords)

Limited liability protection (personal assets remain safe if things go south)

❌ Disadvantages of Using a Limited Company:

Dividend taxation (when extracting profits from the company)

Higher setup & admin costs (accounting, legal fees, and compliance)

More complex tax filing (quarterly digital tax submissions from 2026)

The Making Tax Digital Factor: More Red Tape Ahead?

Starting April 2026, landlords earning over £50,000 per year will be required to file quarterly digital tax returns under the Making Tax Digital (MTD) initiative. This will extend to those earning over £30,000 by April 2027. HMRC is already sending warning letters to affected landlords, urging them to prepare for the change.

For landlords still on the fence, this could be another compelling reason to incorporate. Corporate landlords already maintain structured financial records, making the MTD transition easier.

Final Thoughts

While switching to a limited company can offer major tax advantages, it’s not a one-size-fits-all solution. Higher administrative costs and dividend tax implications mean landlords need to carefully crunch the numbers before making the leap.

However, with interest rates climbing, tax burdens increasing, and stricter reporting requirements on the horizon, it’s no surprise that nearly three out of four new buy-to-let purchases are now structured as limited companies.

Thinking about incorporating? Speak to one of our tax specialists at The Tax Faculty to see if it’s the right move for you!

Capital Gains Tax Expertise: The Tax Faculty LLP Managing Partner Charles Tateson Named UK Capital Gains Tax Advisor of the Year 2023

The Finance Monthly Taxation Awards recognises the achievements of tax professionals from around the globe.

Winning such an award is no small feat. It is a reflection of hard work, extensive knowledge, and an ability to navigate the intricacies of the UK tax system.

Read more about Charles and the award here.

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