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Using a Limited Company to Save Property Tax

The analysis of whether it is beneficial for a property investor to use a limited company can be complex and this helpsheet aims to identify some of the key advantages in considering a limited company for this purpose.

Any decision must be carefully weighed up after examining your own circumstances.

Here are some advantages of using a company...

1. Lower Corporation Tax Rates Compared to Income Tax

   As of the 2025/26 tax year, limited companies pay Corporation Tax at:

   • 19% on profits up to £50,000 (small profits rate).
   • 25% on profits over £250,000.
   • Marginal Relief applies for profits between £50,001 and £250,000, meaning the effective tax rate increases gradually rather than jumping straight to 25%.

   In contrast, an individual property investor could pay Income Tax at 40% or 45% on rental profits if they are a higher or additional rate taxpayer. This means retaining profits within a company can be significantly more tax-efficient.

2. Impact of Associated Companies on Corporation Tax Rates - If you or your spouse/civil partner control another company, it may be classified as an associated company. When companies are associated, the £50,000 and £250,000 Corporation Tax thresholds are divided equally between all associated companies. For example, if two companies are associated, the small profits rate would only apply up to £25,000 per company instead of £50,000, meaning each company could reach the 25% main rate sooner.
3. Impact of Associated Companies on Corporation Tax Rates - If you or your spouse/civil partner control another company, it may be classified as an associated company. When companies are associated, the £50,000 and £250,000 Corporation Tax thresholds are divided equally between all associated companies. For example, if two companies are associated, the small profits rate would only apply up to £25,000 per company instead of £50,000, meaning each company could reach the 25% main rate sooner.
4. Capital Gains Tax (CGT) vs. Corporation Tax on Gains – Using a Limited Company - When deciding whether to hold property within a Limited Company, it’s important to consider the tax implications of selling property or other assets, specifically Capital Gains Tax (CGT) for individuals versus Corporation Tax on gains for companies.

For Individuals:

When individuals sell assets like property, shares, or other investments, they are subject to Capital Gains Tax (CGT). The tax treatment depends on the type of asset and the taxpayer’s income level.

For residential property (which isn’t eligible for Private Residence Relief), the CGT rates are:

• 18% for basic rate taxpayers
• 28% for higher rate taxpayers

For other assets (such as shares or commercial property), the CGT rates are:

• 18% for basic rate taxpayers
• 24% for higher rate taxpayers

Annual Exempt Amount: Individuals can realise up to £3,000 in gains each year without paying CGT. Any gains above this threshold are taxed at the applicable CGT rate based on your income tax band.

For Companies:

A Limited Company, on the other hand, doesn’t pay Capital Gains Tax (CGT). Instead, it pays Corporation Tax on any chargeable gains, which are profits made from the sale of assets such as property.

Corporation Tax on gains is charged at the same rate as the company’s income tax rate. For the 2025/26 tax year:

• 19% for small companies (with profits up to £50,000)
• 25% for larger companies (with profits above £250,000)

 

No Annual Exempt Amount: Companies are not eligible for the £3,000 CGT exemption that individuals can claim. This means companies are taxed on the entire gain, with no tax-free allowance.

Using a company to hold property can be beneficial if you are looking to save on Capital Gains Tax as the company is subject to lower rates (19%-25% depending on size) compared to individual rates (up to 28% for residential property and 24% for other assets). Disadvantages include the fact that companies do not benefit from the Annual Exempt Amount, so the entire capital gain is taxable. Additionally, any distribution of profits (such as dividends or salary) from the company may be subject to personal tax.

1. Company money box - By leaving money in the company and reinvesting, the tax savings can be used to grow property portfolios at a much faster rate. Property development in particular is a trade and liable to income tax as opposed to capital gains tax and so can be better off in a company. However in the longer term you do still have to consider how you are going to extract your funds in a tax efficient manner from the company, which may incur a further tax charge down the line. When a company sells a portfolio property for a gain, it pays corporation tax on that gain but to extract the funds as dividends there may be a higher rate tax charge depending on your personal tax position.
2. Use of Dividends - by using a limited company, profits can be paid out in the form of dividends which avoids any type of national insurance payment. You can also time the taking of dividends to when you want them and so avoid going into personal higher rate tax bands by leaving the money in the company. You can also utilise the dividend allowance ( £2,000 in 2021/22) where applicable.
3. Ownership transfers - a property held in a company could be transferred more easily by means of share transfers rather than actual property transfers and also saves on stamp duty payments.
4. Property Management Companies - sometimes a limited company is not wanted to hold the property but as a property management company to be used instead to manage the property and divert income into it instead and so save tax.
5. Limited Liability - as always it's not just about the tax savings. Building sites can be dangerous places and tenants can have accidents. A limited company will limit the amount of your liability in these cases.

Whether a limited company is right for your property empire will depend not only on the present circumstances but your plans for the future. Also be aware that since 1 April 2013 there is an annual tax on enveloped dwellings (ATED). From April 2016 all such properties valued at over £500,000 will be subject to the tax.

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