How to start property investing: is creating a limited company for you?
If you’re interested in long-term investments, there are a number of implications. Read our guide to find out the pros and cons.
Publication date: 04 July 2025 Reading time: Four minutes
Not so long ago, a property portfolio was seen as a sound way of making money, even for individuals whose main source of income lay elsewhere. The ‘portfolio’ in question might have only one or two properties.
In recent years the rules and regulations governing the private rental sector have tightened, with the result that it’s become more ‘professionalised’. Tax relief has been phased out and improvements to renters’ rights have raised the minimum acceptable standard of residential property.
What was once seen as a safe investment and a pension pot is no longer the sure bet it once was. But letting property can still make sense, depending on your circumstances.
Yields may be lower – possibly even non-existent – but for those eyeing the long-term resale value, it may still make financial sense.
Our 2025 Property Investor Report, which surveys larger portfolio investors, found a continued appetite to invest in commercial and residential real estate, though with differences in sub-classes and regions.
Remember, before you make decisions about investments, ensure you seek professional advice.
Until 2017, landlords were able to offset the interest they paid on the mortgage for any rental properties against tax, along with some other deductible expenses.
That year, the law changed on a three-year phased basis, and since 2020, landlords can claim a flat 20% of their costs from rental properties as a tax credit.
This was introduced to discourage buy-to-let ownership, and attempt to free up housing for first-time buyers.
Some enterprising landlords decided to work around this increased expense by setting up a limited company and transferring ownership of the properties in their portfolio to it, a process called incorporation.
If you do that, read on for what you need to know.
The case against owning property through a limited company
You may have to pay capital gains tax
If you already own property in your name and wish to transfer it to a limited company you’ve set up, you’ll have to pay capital gains tax on any value increase.
Example: Let’s say John Smith bought his house in 2005 for £100,000. In 2025, he moves it to John Smith Ltd, a company he has set up to manage his property. The house is now worth £150,000. He will have to pay tax on the capital gains when the property is transferred to the company – in other words, on the £50,000 value increase. This will be at a rate of 18% and/or 24% depending on the level of your income, and is payable within 60 days of completion of the transaction.
It may be possible to defer the capital gains tax payable if you meet the criteria for incorporation relief
Opens in a new window to apply. Please seek the services of a qualified tax adviser if you need advice on this.
You’ll have to pay Stamp Duty Land Tax (SDLT)
Selling a property to your limited company also incurs SDLT - if it’s worth over £40,000 the company will pay SDLT at 17% unless it meets an exemption from this rule, which includes letting property for commercial profit. Where this is the case the additional rules that apply for individuals apply - i.e. normal rate + 5%. This applies to any transactions above £40,000. The rates and additional surcharges are different in Wales and Scotland than they are to England.
Limited companies are obliged to file their accounts annually with Companies House and so are publicly available, which may not benefit someone who prefers to keep their finances private.
Less favourable lending terms
Banks may lend to limited companies on less favourable terms, as liability is less clear-cut if something goes wrong and the mortgage or loan isn’t repaid. They may, for example, offer a less competitive loan to value compared to if you were buying as a private individual, or they may offer a similar rate but insist on a personal guarantee.
In addition to this, some financial providers may be reluctant to lend to new companies with no track record. You should always seek permission from your lender before transferring properties to a limited company.
You’re considered a ‘a portfolio landlord’ if you’re a corporate borrower with four or more properties, which will change the terms of borrowing.
Corporation tax if you live off the profits
If you need to withdraw profits from the company as income, a company is unlikely to be appropriate as you’ll pay corporation tax at either 19% or 25% as well as income tax on the profits withdrawn from the company.
Why it may make sense to set up a limited company
Again, this all depends on your personal circumstances, but some points to consider are:
Buying a property through the company doesn’t attract capital gains tax
If you’re deciding to start your portfolio now, from scratch, then this might work in your favour. This does not apply to transferring property you already own, which is covered above.
Relatively lower personal liability
The company is a separate legal entity to you, so your personal liability is limited to the extent of your share capital in the company – the proportion you’ve invested.
Tax relief on mortgage interest
Limited companies can not only can deduct the same types of expenditure as individual landlords when calculating tax, but (unlike individual landlords) they can claim tax relief on the interest charged on their mortgage.
Flexibility with funds
If you have money saved to buy a property, you can technically lend it to your limited company as a director’s loan. This will give the company the funds to mortgage a property, which can then be let out. Any income from this rental will form the limited company’s profits, which can then be used to repay the money you lent your company. You can agree flexible repayment terms. But the admin burden and costs can be more.
The case against being a landlord
The lender landscape has changed – it’s tricky for property investors. Interest rates have rocketed in the five years since Covid (although they are on a downward path currently), and well over 200,000 households are now estimated to be behind on their rent
Opens in a new window. Landlords now have higher costs and administrative burdens than they used to. Previously, buy-to-let providers were willing to lend at high loan-to-value. Now, they are less willing to renew when current deals expire.
High levels of SDLT are barriers to entry.
Interest relief is now restricted if you aren’t operating through a company.
There are rising sustainability requirements and tenants demand higher specification houses. Some landlords can’t afford to sell, or move their property to a limited company due to the tax bill.
Regulations mean you’re constantly having to check gas, electricity, the property’s Energy Performance Certificate, and so on.
Houses of multiple occupation (HMOs) are even more tightly regulated than single family homes – if you’re renting out such a property in England or Wales, you may need a license
Opens in a new window.
You might have to pay someone to manage your properties – agent fees can go up to about 12% of rent received.
The case for being a landlord
Beyond the purely financial, there is a lot of demand for rental stock.
The returns can be significant – there are still some good yields to be had.
Property is still likely to appreciate as an investment - even if month-on-month income is low or yields fluctuate, the long-term value of the property itself could still deliver a solid return.
If you’re interested in becoming a property investor, find out how we can help.
