The Myth: Buying Through a Limited Company is ALWAYS Better for Tax
Using an SPV limited company can be tax-efficient for higher-rate taxpayers, but it's not a universal win. Transfer costs, dividend tax, and mortgage rate premiums can outweigh the benefits for some investors.
Since Section 24 restricted mortgage interest tax relief for individual landlords from 2017–2020, the narrative 'always buy through a limited company' has swept through property investment communities. The truth is more nuanced.
An SPV (Special Purpose Vehicle) limited company does protect your ability to offset 100% of mortgage interest against profits, and Corporation Tax (19–25%) is lower than higher-rate Income Tax (40%). However, there are significant friction costs to consider. Firstly, buy-to-let mortgage rates for limited companies are typically 0.5–1% higher than personal rates. Secondly, you still pay SDLT at full residential rates including the 3% surcharge. Thirdly, extracting profits from the company triggers dividend tax (8.75–39.35%), eroding the apparent saving.
The SPV route genuinely excels for investors building a portfolio for long-term wealth rather than immediate income extraction, and for higher-rate taxpayers with large portfolios. But for a basic-rate taxpayer with one or two properties, the additional complexity and costs often outweigh the marginal tax advantage. Always get independent tax advice.