Limited company buy-to-let

Why an SPV usually wins for higher-rate taxpayers

Section 24 of the Finance Act 2015 removed the ability for personally held buy-to-let owners to deduct full mortgage interest from rental profit. Instead, you get a basic-rate (20%) tax credit. For a 40% or 45% taxpayer with a leveraged portfolio, the effective tax bill on rental income can exceed the cash profit. Inside a limited company, mortgage interest is a normal cost of doing business and corporation tax (currently 19% to 25%) applies to the actual profit. The maths is usually decisive once you are above £50,270 of total income.

Worked example, higher-rate taxpayer with one rental

Gross rent £15,600 a year. Mortgage interest £9,000. Other allowable expenses £1,500. Personally held: taxable profit (under post-Section 24 rules) is £14,100 (rent less other expenses, before mortgage interest). At 40% income tax that is £5,640, with a 20% mortgage interest credit of £1,800. Net tax bill £3,840 a year. Real cash profit after mortgage and tax is £1,260. Inside an SPV, the same numbers produce taxable profit of £5,100 (rent less expenses less full interest) at 19% to 25% corporation tax: £969 to £1,275 a year. The SPV saves roughly £2,500 to £2,800 a year per property compared with personal ownership at higher rate. Across a four-property portfolio that is £10,000 to £11,000 a year of avoidable tax.

How an SPV is structured

An SPV is a private limited company registered at Companies House with SIC codes restricted to property letting (typically 68100, 68209, 68320). Lenders prefer this clean structure because it makes underwriting predictable. Most SPVs have one or two directors, who are usually also the shareholders, and no trading activity outside property.

Lender pool and pricing

A significant majority of buy-to-let products are now available to limited companies, and pricing has narrowed in recent years, though a modest gap to personal-name pricing typically remains. Most lenders ask for a personal guarantee from the directors, which means you are personally on the hook if the company defaults.

What you give up

Profits stay inside the company until you take them out as dividends or salary, both of which are taxed personally. If you need the rental income now to live on, the SPV is less useful. There are also accountancy costs (typically £600 to £1,200 a year per company) and Companies House filings to maintain.

SPV per property versus shared SPV

Most lenders accept a single SPV holding multiple properties. Some investors choose to use separate SPVs to ring-fence risk and segregate assets as their portfolio grows. Single-SPV is administratively simpler and cheaper (one set of accounts, one corporation tax return). Multi-SPV protects each property from the others if one defaults. We discuss the structure with your accountant before lodging the first application.

Buy-to-let warning

Most buy-to-let mortgages, including limited company buy-to-let, are not regulated by the Financial Conduct Authority. The FCA Consumer Duty rules that apply to your residential mortgage do not all apply here. Take tax advice from an accountant before incorporating, the structure is harder to unwind than to set up.

Common pitfalls we see

Setting up an SPV with a generic SIC code that includes trading, which lenders reject. Underestimating the cost of moving an existing personally-held property into a company (SDLT plus the 5% additional-property surcharge plus capital gains tax can mean £25,000 to £40,000 of upfront cost on a single property). Not running personal guarantees past the spouse for sign-off. Picking the cheapest accountant who has never done buy-to-let SPV accounts. We work all four with you and your accountant before applying.