Buy-to-let tax, ownership and structure: what every landlord should know
Whether you’re exploring buy-to-let as a long-term investment, or you’ve unexpectedly become a landlord due to life circumstances, one thing’s for sure: it’s not as simple as “buy a property and rent it out”.
There are important decisions to make before you even apply for a mortgage. For example:
- Should I buy in my own name, or through a limited company?
- How is rental income taxed?
- Will lenders treat me differently depending on the setup?
1. Personal vs Ltd company: what’s the difference?
When buying a buy-to-let property, the two main options are:
- Buy it personally, in your own name.
- Or use a special purpose limited company (SPV), set up just to hold property.
Each option has its pros and cons:
| Personal ownership | Ltd company ownership | |
|---|---|---|
| Income tax | Rental income taxed at your personal rate (20–45 %) | Corporation tax (currently 19-25 %), with tax on dividends if withdrawn |
| Mortgage interest | Limited relief available (basic-rate only) | Full interest is deductible before tax |
| Mortgage options | More lenders, often cheaper rates | Fewer lenders, potentially higher interest rates |
| Admin | Simpler, personal tax returns | Requires company setup, tax returns, personal & company |
So, which is better? That depends on your income, long-term goals, and how many properties you plan to own. For one property, personal ownership may be simpler. For growing portfolios or higher-rate taxpayers, Ltd might bring savings, if structured well.
Tip. Many landlords set up Ltd companies without fully understanding the tax implications. Speak to both a broker and an accountant before deciding.
2. Rental income: how it’s assessed.
Lenders don’t just look at your income from employment — they also analyse how much the property will generate in rent. They’ll run a rental stress test, which varies by lender, but often looks like this:
- Expected rent × 125–145 %.
- Compared to monthly mortgage payments, at a notional interest rate typically 5–7 %.
Translation: even if the rent covers your actual payments, you might not qualify unless it clears the stress test.
For Ltd companies, lenders may use slightly looser calculations, but usually at a higher interest rate.
3. Tax rules are changing, and ignorance is expensive
Some landlords assume that rental income is “side money”. In reality, it’s taxable, and you must declare it to HMRC, even if you make no profit. You’ll also need to think about:
- Stamp Duty Land Tax (SDLT). +3 % surcharge on additional properties.
- Capital Gains Tax (CGT). If or when you sell at a profit.
- Allowable expenses. What can be deducted, and what can’t.
- Section 24. The rule that restricts mortgage interest relief for individual landlords.
Still unsure? HMRC offers online guidance, or speak to a property accountant or tax advisor. But don’t ignore it. Many landlords get caught out by penalties later.
4. Mortgage expectations: it’s not like your first home.
Buy-to-let mortgages have stricter rules and larger deposit requirements versus a typical residential mortgage. Expect:
- Minimum 20–25 % deposit.
- Slightly higher interest rates.
- Proof of rental income or forecast.
- Experience as a landlord (for some lenders).
If you’re a first-time landlord (especially if also a first-time buyer), some lenders may not accept your application. But others will, with the right paperwork and broker support.
Bottom line: clarity now saves stress later.
Buy-to-let can be a powerful financial tool. But it’s a business. And like any business, structure matters. Before you apply, make sure you understand how ownership, tax and lending criteria will affect your plans, today and down the line.
Need help comparing your options? Let’s talk. Whether you’re planning your first investment or figuring out what to do with an inherited property, we’ll guide you through your options clearly and honestly.
