Selecting the right ownership structure is essential when investing in residential property if you want to be as tax efficient as possible and meet your long-term investment goals.
So, whether you're already a portfolio landlord or you’re exploring your first buy-to-let (BTL) property, this guide from Rocket Property Management and WSM Accounting Services breaks down the pros and cons of the available structures: personal ownership, company ownership, and partnerships.
Key Factors to Consider Before Purchasing
When deciding between personal or company ownership, the main considerations are Stamp Duty Land Tax (SDLT) and income tax rules on rental profits. Additionally, investors should assess their long-term plans, including borrowing requirements, exit strategies, and inheritance planning.
1. Stamp Duty Land Tax (SDLT)
Personal and Company Purchases
- For both personal and company purchases of second properties, SDLT rates include a 5% surcharge on top of standard tier rates. This surcharge increased from 3% in the latest budget.
- If the property will not be let commercially or is used privately by a connected party (e.g., shareholders or directors), companies face a default SDLT rate of 17%. Private use includes even minimal occupation, such as staying for one night within three years of purchase.
- For commercially let properties, SDLT liability is the same whether purchased through a company or personally.
Example:
For a £500,000 second property, SDLT liability as of the recent changes would be:
- Up to £250,000: 5%
- £250,001 to £500,000: 10%
This totals £37,500.
2. Taxation of Rental Income
Personal Ownership
- Rental income is taxed at the individual’s marginal income tax rate:
- 20% for basic-rate taxpayers
- 40% for higher-rate taxpayers
- 45% for additional-rate taxpayers
- Interest deduction is capped at the basic tax rate, making borrowing less tax-efficient for higher-rate taxpayers.
Example:
For a higher-rate taxpayer with £50,000 in rental income and £20,000 in interest, the tax liability would increase due to limited interest relief, costing an additional £4,000 in tax compared to earlier rules.
Company Ownership
- Rental profits in a company are taxed at the corporation tax rate of 25%. Full deduction of interest expenses is allowed, making this structure more tax-efficient for highly leveraged investments.
- Companies retain more post-tax income for loan repayments:
- 75% of profits with a 25% tax rate versus 55% of profits with a 45% personal tax rate.
Best for: Long-term investments with significant borrowing, where profits can be retained within the company for reinvestment.
3. Capital Gains Tax (CGT)
Personal Ownership
- Gains on property sales are taxed at 18% (basic rate) or 28% (higher rate).
- A £100,000 gain leaves an investor with £72,000 after CGT.
Company Ownership
- CGT for companies is taxed at the corporation tax rate of 25%, leaving £75,000 from a £100,000 gain.
- However, extracting profits from the company incurs additional taxes, such as:
- Dividend tax: Up to 39.35% for additional-rate taxpayers.
- Winding up: 20% capital gains tax.
Example:
Extracting a £100,000 gain from a company via dividends leaves £54,675, compared to £72,000 from personal ownership.
4. Profit Extraction
Companies face a second layer of taxation when distributing profits:
- Dividends: Tax rates range from 8.75% to 39.35%.
- Winding up: Gains are taxed at 20%, which can be more tax-efficient than dividends.
For short-term investments, personal ownership is often better due to simpler profit extraction. For long-term investments with reinvestment goals, a company structure may provide better overall returns.
5. Other issues
Annual Tax on Enveloped Dwellings (ATED)
The ATED is a yearly tax applicable to all corporate bodies that own UK residential properties valued over £500,000. Introduced on April 1, 2013, ATED aims to discourage the ownership of high-value residential properties through corporate structures where there is connected party occupation of the property.
The annual charge for 2025/26 commences at £4,450 for properties valued at between £500,000 and up to £1 million and increases to £292,350 for properties valued in excess of £20million.
There are various exemptions from the charge, the main ones of which are properties used for either a property rental business or a property development business.
An ATED return must be filed every year by all companies that own UK residential property valued in excess of £500,000 on the relevant valuation date, regardless of whether an exemption applies and therefore no ATED liability arises.
Compliance costs
Generally the costs of compliance are higher for a company structure than personal ownership. Apart from the obligation to file an ATED return, a company is annually obliged to file statutory accounts and a compliance statement at Companies House, plus an annual corporation tax return with HMRC. By contrast, an individual is only required to include the income and expenses from his property rental business on his annual self assessment return.
6. Partnerships and Family Property Strategies
Family Property Partnerships
- Parents can introduce children as partners in a property partnership. The growth in property value is allocated to the children's shares, reducing the parents' taxable estate.
- This structure is ideal for inheritance tax planning, especially for long-term investments.
Corporate Ownership with Loans
- Parents can fund a company by loaning capital. Children own the shares, so property value growth accrues to the children. Parents maintain control as directors while reducing inheritance tax liabilities.
7. Trust Arrangements
Trusts, while historically common, are now less popular due to changes in taxation rules:
- Relevant Property Trust Regime: Trusts face inheritance tax charges every 10 years, based on property value.
- Business Property Relief Limits: Previously unlimited, relief is now capped at £1 million per trust or individual.
Trusts are typically unsuitable unless the property qualifies for agricultural or business property relief.
8. Consider Your Long-Term Goals
When choosing a structure, it’s important to consider your investment objectives:
- Short-term investments: Personal ownership may be simpler and more cost-effective.
- Long-term portfolios: Companies or partnerships offer tax efficiency for reinvestment and borrowing.
- Inheritance planning: Family partnerships and corporate ownership structures provide options for transferring wealth to the next generation.
Why Choose Rocket and WSM for Property Advice?
Navigating these complex structures requires expert guidance. At Rocket Property Management, we partner with WSM Accounting Services to provide tailored advice on property acquisitions and structuring.
Once the decision has been made on the best structure for the property purchase(s), at Rocket we can help with the sourcing and acquisition of the property, problem solve through to completion, and provide assistance with any works required to make the investment work.
We also have a team finding tenants and managing the property to provide the income, and even assist with sales if a property needs to be sold at some point.
We provide a one stop shop for investors, so our expertise means you make informed decisions that align with your goals, whether you’re building a portfolio or planning for the future.
Our expertise means you make informed decisions that align with your goals, whether you’re building a portfolio or planning for the future.
Ready to Explore Your Options?
Contact Rocket Property Management or WSM Accounting Services today to discuss your investment strategy and find the structure that works best for you.
