What Section 24 means for landlords and why limited companies are different
Section 24 of the Finance Act 2015, phased in between 2017 and 2020, fundamentally changed the tax position of personal buy-to-let landlords. Before Section 24, landlords could deduct 100% of their mortgage interest from rental income before calculating their tax liability. After Section 24, higher-rate and additional-rate taxpayers can only claim a 20% tax credit on mortgage interest — regardless of their actual tax rate.
For a higher-rate taxpayer with a £300,000 BTL mortgage at 5%, this means annual interest of £15,000 is no longer deductible at 40% (saving £6,000 in tax) — instead, they receive only a £3,000 tax credit. The effective tax cost of the mortgage interest has increased by £3,000 per year for that single property.
A limited company, by contrast, pays corporation tax (currently 25% for profits above £250,000) on net rental profit after deducting mortgage interest as a business expense — exactly as before Section 24. This makes the limited company SPV structure significantly more tax-efficient for higher-rate taxpayers with meaningful mortgage debt.
What is an SPV and how does it work?
An SPV (Special Purpose Vehicle) is a limited company established specifically to hold buy-to-let properties. Most BTL lenders that offer limited company mortgages require the borrowing to be in an SPV rather than a general trading company.
The SPV is typically set up with a specific SIC code (usually 68100 — buying and selling of own real estate — or 68209 — other letting and operating of own or leased real estate) that signals to lenders it is a property investment vehicle. Some lenders are very specific about which SIC codes they accept.
The landlord — as director and shareholder of the SPV — takes income from the company either as salary (up to the personal allowance with no NI implications) or as dividends, which are taxed at dividend rates rather than income tax rates. This can create additional tax efficiencies when combined with the full mortgage interest deduction.
Setting up an SPV
The process is straightforward:
- Incorporate the company at Companies House (can be done online in minutes for around £12)
- Use the correct SIC codes (68100 and/or 68209)
- Open a business bank account for the SPV
- Ensure the SPV's registered address and directors are correctly set up
- Consider whether you want multiple shareholders (e.g. spouse/partner) to share dividend income
Rate comparison: limited company vs personal BTL mortgages
Limited company BTL mortgage rates are typically slightly higher than equivalent personal BTL rates — usually by 0.2%–0.5% depending on the lender and product. The lender panel for limited company BTL is also smaller than for personal BTL, meaning there are fewer products to choose from and specialist brokers are more valuable in this market.
The rate difference has narrowed in recent years as more specialist lenders have entered the limited company BTL market. Some lenders now offer equivalent rates for both personal and limited company BTL, particularly for lower LTV borrowers with strong portfolios.
The tax saving from limited company BTL for higher-rate taxpayers typically significantly outweighs any rate premium, particularly as mortgage balances (and therefore interest) are substantial. A landlord paying 0.3% more on a £500,000 portfolio costs approximately £1,500 more per year in interest — but might save £10,000+ per year in tax relief.
Stamp duty and limited companies: what landlords need to know
One of the most significant costs associated with limited company BTL is stamp duty. When a company purchases a residential property, it pays SDLT at the standard rates plus the 3% BTL surcharge — the same as a personal landlord purchasing an investment property. There is no exemption for limited companies.
Crucially, if a personal landlord transfers an existing personally-held property into their own limited company, this is treated as a market-value sale for SDLT purposes — meaning the company must pay SDLT at the full rate including the 3% surcharge on the market value of the property, regardless of whether money actually changes hands.
This SDLT cost (plus potential capital gains tax on any gain) is the primary reason why most existing personal landlords do not transfer their portfolios into a limited company. The costs typically outweigh the long-term tax benefit unless the portfolio is very large and the holding period very long.
For new purchases, the limited company does not have any additional SDLT disadvantage compared to a personal landlord — both pay the 3% surcharge on top of standard SDLT rates. The limited company route is therefore most attractive for landlords beginning or growing a portfolio of new acquisitions.