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Published: 21/04/2017

The tax changes impacting the buy-to-let mortgage market have certainly taken their toll on landlords, many of whom could be finding their profitability seriously compromised. As a result, many are turning to limited company arrangements to avoid being hit with additional tax, but could this be an option for you, and how can you go about it? We take a closer look at how to set up a BTL limited company.

Buy-to-let tax relief changes

The Government's latest reforms apply to landlords who pay tax on an individual basis, rather than those operating through a company. These buy-to-let (BTL) investors will face a gradual reduction in tax relief that will serve to both reduce their profits and increase their tax bill – the changes began to be phased in at the start of the 2017/18 tax year, and by 2020, landlords will have to pay tax on their full rental income, net of other allowable expenses, without deducting the cost of BTL mortgage interest, and will instead receive a tax credit equal to 20% of their interest cost.

As this new form of tax relief will be offered at a set rate, rather than according to the landlord's income tax band, higher and additional rate taxpayers could end up paying far more in tax (as they would have qualified for up to 45% tax relief under the previous system), as could basic rate taxpayers if the changes push their earnings into the higher bracket. You can find out more about the changes, as well as how mortgage providers are accommodating the drive to incorporate, here.

Why incorporate?

The reforms apply to landlords who pay tax on an individual basis, rather than those operating through a company – which means landlords who are structured as the latter are exempt and won't face any tax hikes. A limited company and its finances are legally separate from your own, and as such, tax liabilities will switch to corporation tax on your profits at a flat rate, which is currently 19%.

For this reason, incorporating may not be suitable for everyone, but for some, it could be the key to retaining profitability. It will of course take some serious consideration of all the costs involved, and you'll want to seek specialist advice to make sure it's the right option. Contact our mortgage adviser partners for a no obligation chat to get started. But, if you've looked at the maths, sought specialist advice and discovered that incorporating is the way to go, how can you go about it?

How to set up as a limited company

  • Register as a limited company with Companies House. This, in a nutshell, is incorporating. You can do this yourself online, or you may want to go through a solicitor or accountant.

  • You'll need to provide a few basic details, such as your company name, address, the director, details of the company's shares/shareholders and what it does (this will require you to check your SIC code, or standard industrial classification of economic activities).

  • Once you've officially set up your company, you'll need to register for corporation tax. Again, this needs to be done through Companies House – you can arrange this online using your 10-digit Unique Taxpayer Reference (UTR), which will be sent to your company address within a few days of becoming incorporated.

  • You're required to register for corporation tax within three months of incorporating; you'll face a penalty for registering late. You'll need to tell HMRC your company's registration number, the date you started to do business (your company's first accounting period will start from this date), and the date your annual accounts are made up to.

Once that's sorted, it's official – you're a limited company for tax purposes, and will now pay corporation tax on your company's profits! However, this means there's slightly more to things like buying and selling your BTL properties, and if you already have a portfolio, you'll need to start the process of transferring those over to your company. Our recommendation - take specific professional advice from the outset.

Property and tax implications

If you're already a BTL investor, you'll face additional tax implications when transferring property into a company. Essentially, you'll need to "sell" your properties to your newly-formed company, and if the purchase price has risen, you'll be liable to pay capital gains tax on it (unless you can show that the property is a "business" rather than an "investment").

Then, when "buying" the property through your company, you'll have to pay the extra 3% stamp duty surcharge for additional/BTL properties, which can add to the costs involved (again, it's worth doing the maths on these kinds of costs before you take the plunge, just to make sure it really will be worthwhile in the long-term). Most landlords will need to set up a "special purpose vehicle" when buying, too, although this shouldn't pose too much financial drawback – it could even be beneficial when applying for a buy-to-let mortgage.

Bear in mind that, if you have an existing BTL mortgage on the property, issues could arise when it comes to changing it from an individual to a company arrangement. The lender may be happy to switch the mortgage over to the company name when the property is transferred, but on the other hand, they may not, in which case a remortgage would be required with all the costs associated. Make sure you seek advice and also speak to your lender before you take the plunge to make sure you're prepared.

Be aware that the way you'll pay tax will also change. You'll need to file your company's accounts each year, and complete an annual return to inform HMRC of any taxable income or profits on which corporation tax is payable.

As a director, you're essentially an employee of the company, and will have to pay income tax and Class 1 National Insurance Contributions on any income you take from it. Any profit from the company can be distributed to named shareholders as dividends, which will also be taxable, however you may wish to keep the profits in the company or distribute it more tax-efficiently (such as by timing dividend payments or distributing them to shareholders, if there are others, who are basic rate taxpayers).

There's a myriad of issues to consider, which is why we recommend you seek legal advice and consult your tax accountant to get specific professional advice for your circumstances.

Find the right BTL mortgage for limited companies

Once you've gone through the process of incorporating, you'll also find that your mortgage options change. You'll need to find an even more specialist product as not all BTL mortgages are available to limited companies, but happily, a growing number will accommodate – our data shows that the number of BTL mortgages available to limited companies has more than doubled in the last year, rising by almost 100 in the last six months alone, as lenders respond to rising demand.

This means it should be far easier for newly-incorporated landlords to find the best BTL mortgage deals available to suit their circumstances – check out our Best Buys to get started and make sure to seek suitable advice, and see if you can benefit from becoming a limited company.


Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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