Excellent experience start to finish – always very responsive to any queries and the turnaround on the property I was buying was very quick, even in the busy time leading up to stamp duty deadline. Jenny was always very helpful and went above and beyond to close on a short timescale.
Written by Lauren Sever, Partner.
With the Chancellor’s November 2025 Budget confirming a 2% hike on property income from April 2027, thousands of landlords are now staring down the barrel of higher personal tax bills and sharply thinner margins. For investors holding rental property in their own name, the effective tax rates on property income will jump to 22%, 42% and 47%, tightening the squeeze on already-pressured yields.
Unsurprisingly, attention is rapidly shifting to limited companies where rental profits remain taxed under Corporation Tax (capped at an upper limit of 25%), rather than the new property-income surcharge. As the landscape tilts, the question for many landlords is no longer whether to incorporate, but whether they can afford not to.
As the residential buy-to-let market in England and Wales continues to undergo seismic legal reforms, new landlords entering the sector, along with those with existing portfolios, are increasingly turning to corporate structures. These corporate vehicles enable the acquisition and holding of buy-to-let residential property portfolios while ring-fencing liability, minimising tax liabilities, and facilitating effective estate planning.
Establishing the appropriate structure, particularly prior to acquiring properties, can deliver substantial tax planning benefits, ring-fenced liability, operational efficiencies, and an effective manner of transferring generational wealth.
While the decision to adopt or transition to a corporate structure may seem straightforward, selecting the optimal corporate structure is not a one-size-fits-all exercise. We strongly recommend seeking tailored advice, especially in cases involving conversion from personal ownership. Tax rules are subject to change, and consulting a qualified tax adviser for the latest guidance is a must.
In this article, we explore the most popular corporate structures used to buy and hold buy-to-let residential property portfolios in England and Wales, highlighting the key features, benefits, and potential drawbacks of each. Before delving into these, we examine the traditional approach: holding properties in the landlord’s personal name.
Personal Ownership – The Traditional Choice
Traditionally, individuals have purchased buy-to-let residential properties in their own name. The primary advantage of this approach is its simplicity, with a lower administrative burden and, historically, no significant tax disincentives to personal ownership.
However, tax and legislative changes, particularly the “Section 24 Tenant Tax” (which curtailed a landlord’s ability to deduct the majority of finance costs, including mortgage interest and arrangement fees, from rental income before calculating income tax liability), have altered the landscape. Coupled with tenant-friendly regulations and the impending introduction of punitive penalties for regulatory non-compliance, these developments have encouraged many to explore alternatives.
Limited Company
A limited company remains the most common corporate vehicle for landlords buying and holding buy-to-let residential properties. This structure entails establishing a limited company, often specifically for property investment purposes, which owns the properties.
Typically limited by shares (though it can be limited by guarantee), a limited company is a separate legal entity from its shareholders and directors. Consequently, the liability of shareholders, for instance, in relation to debts arising from the properties, is restricted to the value of their investment in the company.
Key Advantages
Utilising a limited company for acquiring and holding buy-to-let residential properties offers several benefits, which should be discussed with an accountant or tax adviser:
Tax Efficiency
Rental profits are subject to corporation tax rates, currently 19% for profits up to £50,000, blending up to 25% for profits between £50,000 and £250,000, and 25% thereafter. These rates are generally lower than the newly announced higher (42%) or additional (47%) income tax rates applicable to individuals. Crucially, mortgage interest can be fully deducted from profits before calculating corporation tax liability, a relief significantly eroded for personal owners under the Section 24 Tenant Tax.
Ring-Fenced Liability
As a distinct legal entity, the company’s debts and liabilities are separate from those of its shareholders and directors, safeguarding personal assets in the event of financial difficulties (unless personal guarantees or additional security have been provided).
Estate Planning Opportunities
The structure facilitates intergenerational wealth transfer, with shares potentially passed to heirs in a tax-efficient manner.
Potential Drawbacks
Despite these advantages, several considerations warrant attention:
Administrative Burden
Establishing and maintaining a limited company incurs additional legal and accounting fees.
Mortgage Challenges
Securing financing can be more complex, with lenders often imposing higher interest rates, requiring larger deposits (typically 20-30%), and demanding personal guarantees from directors.
Tax on Withdrawals
Dividends extracted from the company are subject to personal taxation, though for “higher rate” or “additional rate” taxpayers, particularly those reinvesting profits for growth (keeping the profit in the company), this may still prove more efficient than personal ownership.
Which kind of Limited Company?
An off-the-shelf limited company is not always the ideal solution for acquiring residential properties and holding them as part of a portfolio. The flexibility of share structures within a limited company allows for unequal or differentiated rights among shareholders.
Ordinary Shares
Under an ordinary share structure, there is just one single class of shares, granting each shareholder identical rights regarding voting, capital returns, and dividends. Dividends are distributed proportionately based on shareholdings.
Alphabet Shares
Alternatively, alphabet shares assign distinct rights to different classes (e.g., “A”, “B”, “C” shares). For instance, “A” shares might confer voting rights, enabling control, while “B” shares carry no voting rights or control but receive dividends.
Key Advantages
Flexible Dividend Distribution
Dividends can be declared selectively on specific classes, accommodating diverse shareholder needs.
Broader Shareholder Involvement
This structure supports a variety of shareholders with differing interests, rights, and obligations.
Enhanced Estate Planning
Commonly employed for family succession, where parents hold shares with voting and dividend rights but minimal capital entitlement on winding up (for example, “A” shares), while children hold shares focused on capital growth (“B” shares). This enables tax-efficient wealth transfer to children while parents retain control and receive the dividends until their class “A” shares pass to their children.
The alphabet share structure promotes tax efficiency and estate planning but requires meticulous drafting to comply with HMRC rules and ensure you don’t fall foul of any anti-avoidance measures, such as the Settlement Legislation (which prevents the diversion of an individual’s income to another person who is liable at a lower rate of tax or is not liable to income tax).
Where varying rights apply, a Shareholders’ Agreement is advisable to reinforce provisions, including restrictions on share transfers (e.g., pre-emption rights to keep shares within the family) and contingencies for events like death or divorce. Bespoke Articles of Association should also reflect the adopted structure.
Potential Drawbacks
Increased Complexity
Set up demands careful legal input, potentially elevating costs and compliance risks.
Alternative Structures
While limited companies predominate, other options may suit specific scenarios for commercial entities and high-net-worth individuals.
Limited Liability Partnerships (LLPs)
Ideal for joint ventures, LLPs offer pass-through taxation (profits taxed at the member level) and limited liability, with flexibility for multiple members. However, they may not align perfectly with pure buy-to-let strategies due to partnership complexities.
Trusts
Discretionary trusts can aid estate planning by holding properties outside personal estates, potentially reducing inheritance tax. Nonetheless, tax implications (e.g., capital gains tax on transfers) and operational constraints make them less common for active portfolios.
Compliance Considerations
Beyond structure selection, compliance is paramount. This includes Anti-Money Laundering checks during setup and adherence to the Economic Crime and Corporate Transparency Act 2023, which mandates enhanced transparency in company registers. Non-compliance can result in severe penalties, underscoring the value of specialist advice.
