Are buy-to-let companies worth the hype?

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According to the press the number of landlords setting up buy-to-let companies has hit a ten-year high. Over 66,000 companies were set up in 2025, thought to be in response to increasing mortgage rates and frozen tax thresholds. What Companies House statistics can’t tell you is whether all those landlords will save tax, and if so, why.

Tax on profits

If you look solely at the rate of tax applied to profits, corporation tax is usually cheaper. However, that isn’t the full picture. Once you draw the income from the company, you’ll be hit with personal tax and so any advantage is more than wiped out. You’ll actually be worse off. Basic rate and non-taxpayers will be better off owning the properties personally. If you need to spend the rental income, company ownership probably isn’t for you as, overall, more tax will be payable.

Mortgage maths

A key difference between corporate and personal ownership is the tax treatment of mortgage interest. It’s fully tax deductible for a company but individuals are only allowed a tax credit, equal to the basic rate of tax (currently 20%).

Example. A property business generates profits of £50,000, before taking into account mortgage interest of £9,000 in 2025/26. A company would pay £7,790 in corporation tax ((50,000-9,000) x 19%), leaving £33,210 to be extracted. Assuming the shareholder extracts this as a dividend, and is a higher rate taxpayer, they will be left with £22,002 after tax (£33,210 - 33.75%). Whereas an individual would pay £18,200 income tax ((£50,000 x 40%) + (£9,000 x 20%)), leaving net income of £31,800. This represents a saving of £9,798, despite the mortgage interest restriction.

Before deciding whether to set up a company we would recommend running calculations based on your individual circumstances.

When is it better to use a company?

A company can be more tax efficient if you don’t need to extract the income and instead use it as a piggy bank.

Example. Andy and Agnes are higher rate taxpayers. They set up a company which purchases buy-to-lets. Net profits are around £20,000 per year and as such the company pays corporation tax of £3,800. Whereas if this was personal income they would pay £8,000 in income tax. If they retire in ten years, the company would have an additional £42,000 ((£8,000-£3,800) x 10) on top of the retained profits. Tax relief for any mortgage interest increases the savings further. When they retire they are no longer higher rate taxpayers and can take dividends as required and pay just 10.75% (2026/27 rates) tax.

Double tax on growth

Longer term plans for the properties also need to be considered. If you plan to sell them once they’ve appreciated in value, you’ll pay capital gains tax rates (18/24%) on the difference, whereas a company will pay corporation tax rates (19-25%). Again, the problem is the additional personal tax you’ll incur when you take money out of the company. If, instead of selling up, you plan to pass them on to the next generation, using a company can better facilitate this.