You have found a rental that stacks up, and now you are stuck on the ownership question: buy it in your own name, or set up a limited company? For most higher-rate landlords the deciding factor is the mortgage. Company (SPV) buy-to-let mortgages usually carry a higher rate than the personal equivalent, and the fear is that the extra interest eats the tax saving that pushed you towards a company in the first place. Here is how the two effects actually net off.
What an SPV mortgage actually is
An SPV, or special purpose vehicle, is a limited company set up to do one thing: hold and let property. Lenders like them because the company's only activity is the rental, which keeps the accounts clean. When you incorporate you register a SIC code that tells Companies House the business is property letting. The common ones are 68100 (buying and selling own real estate), 68209 (letting and operating own or leased real estate) and 68320 (managing real estate on a fee basis).
Most buy-to-let lenders will only lend to a "clean" SPV rather than a trading company, and many restrict directors and shareholders to a handful of people. The mortgage is granted to the company, but as a director you will almost always be asked to stand behind it personally (more on that below).
The rate premium is real, but it has narrowed
Company buy-to-let rates have historically sat above personal rates, partly because the lender pool is smaller and the underwriting is more involved. As the limited-company market has grown, and a large share of new buy-to-let purchases now go through companies, the gap has closed. But at the time of writing you should still budget for a slightly higher rate and, often, a higher arrangement fee.
Rather than quote a headline number that will be out of date next month, treat the premium as an input. In the worked example below I assume the company deal costs you an extra £900 a year in interest on the same loan. Swap in your own quotes before you decide.
The lower 125% ICR can let you borrow more
Lenders size a buy-to-let loan with an interest coverage ratio (ICR): the rent has to cover the mortgage interest by a set margin, tested at a stress rate rather than the pay rate.
- An individual paying higher-rate tax is usually stress-tested at around 145% ICR.
- A limited company is often tested at 125% ICR, because the company is not exposed to Section 24 in the same way.
That lower ratio can mean a company borrows more against the same rent. Take a property renting for £12,000 a year, stressed at 5.5%:
- At 145% ICR: maximum loan is roughly £12,000 ÷ (5.5% × 1.45) = £150,500.
- At 125% ICR: maximum loan is roughly £12,000 ÷ (5.5% × 1.25) = £174,500.
Same rent, about £24,000 more borrowing through the company. That can be the difference between a deal working and not working. You can run the same sum for your own rent, rate and margin with our mortgage stress test.
Personal guarantees: the company does not fully shield you
The appeal of a company is limited liability, but for a mortgage that protection is partial. Nearly every SPV buy-to-let lender requires each director to sign a personal guarantee (PG), so if the company defaults and the sale of the property does not clear the debt, the lender can pursue you personally for the shortfall. Guarantees are often capped at a percentage of the loan, but some cover the full amount. Several lenders now ask that you take independent legal advice on the PG before completion. Factor that into the "is this really ring-fenced" question. Your home is not usually at stake, but your personal assets can be.
The Section 24 case: does the tax saving beat the higher rate?
This is the number that matters. Since Section 24 fully bit in April 2020, individual landlords can no longer deduct mortgage interest from rental profit; instead they get a 20% basic-rate tax credit on the interest (gov.uk guidance). Companies are untouched by Section 24 and still deduct interest in full before paying corporation tax.
Here is a single property compared both ways. A higher-rate (40%) taxpayer, £12,000 rent, £1,500 of other allowable costs, and mortgage interest of £6,000 personally or £6,900 in the company (the assumed rate premium):
| Personal (higher-rate) | Limited company (SPV) | |
|---|---|---|
| Rent | £12,000 | £12,000 |
| Interest deducted from profit | £0 (Section 24) | £6,900 |
| Other costs | £1,500 | £1,500 |
| Taxable profit | £10,500 | £3,600 |
| Tax before credit | £4,200 (40%) | £684 (19%) |
| Basic-rate interest credit | -£1,200 | n/a |
| Tax due | £3,000 | £684 |
| Cash left after tax | £1,500 | £2,916 |
Even carrying the higher mortgage rate, the company keeps £2,916 against the individual's £1,500. The corporation-tax figure uses the 19% small-profits rate that applies below £50,000 of profit; profits above £250,000 are taxed at 25%, with marginal relief in between (gov.uk).
One honest caveat: that £2,916 is money sitting inside the company. The moment you pay it out to yourself as a dividend you are taxed again personally, which narrows the gap. The company advantage is strongest when you are reinvesting profits to grow the portfolio rather than drawing every pound as income.
When the company route does not pay
If you are a basic-rate taxpayer, Section 24 barely touches you, so the higher SPV rate and the running costs (accounts, filing, an accountant) can leave you worse off. The same is true for a single low-geared property where the interest is small, or where you need the rental income to live on and will draw it straight out. Incorporating an existing personally-owned property is a bigger decision again, because it is a sale to the company that can trigger stamp duty and capital gains tax.
This is general information, not tax or financial advice. Your position depends on your income, your gearing and your plans, so run your own numbers and speak to a qualified adviser or broker before you commit.
