Unlike residential buy-to-let, where Section 24 famously restricts individual landlords to a basic-rate tax credit rather than full mortgage interest relief, this restriction genuinely never applied to commercial property at all. If you’ve absorbed the residential rules and assumed they apply here too, it’s worth understanding the genuinely different starting point commercial ownership actually has before comparing your options.
The Genuine Correction Worth Making First
Our UK Commercial Finance hub covers the wider lending landscape; this page focuses specifically on the genuine tax comparison between owning commercial property personally versus through a limited company. Individuals, sole traders, and partnerships have always been able to deduct mortgage interest on commercial property in full as a normal business expense – there’s no equivalent to the residential Section 24 restriction to factor in here, which meaningfully changes the calculation compared with what many residential landlords have come to assume.
The Core Rate Comparison Worth Understanding
Personal ownership means rental or trading profit from the property is taxed at your Income Tax rate, up to 45% for additional-rate taxpayers. Company ownership means the same profit is taxed at Corporation Tax rates instead – 19% on profits up to £50,000, tapering through marginal relief, and 25% above £250,000. For a higher or additional-rate taxpayer, this gap between personal Income Tax and Corporation Tax is genuinely the single biggest factor most people focus on when weighing up the two structures.
Why the Comparison Isn’t Simply “Company Always Wins”
It’s worth understanding that Corporation Tax is only part of the picture – if you want to actually access the profit personally rather than leaving it in the company, extracting it as dividends or salary creates a further tax charge on top. The genuine efficiency of company ownership depends heavily on whether you’re planning to reinvest profits within the business, or draw them out for personal use, since the second scenario narrows the gap between the two structures considerably.
Occupier vs Investment: Does the Comparison Genuinely Differ?
Our Occupier Mortgages page covers buying premises your own business trades from, where the property sits alongside your wider trading activity rather than as a standalone investment. Our Investment Mortgages page covers buying to let to a separate tenant, where the property itself is genuinely the whole business. It’s worth discussing with your accountant which scenario applies to you, since an occupier purchase often sits within decisions about your existing trading company structure, while an investment purchase is more commonly considered as a standalone SPV question.
Capital Gains: A Genuinely Different Regime for Companies
It’s worth knowing that companies pay Corporation Tax on capital gains at the same rate as income, currently up to 25%, with no separate annual exempt amount the way individuals genuinely benefit from. Personal ownership instead falls under standard Capital Gains Tax rules, with its own annual exempt amount and different rates depending on your income band. This is worth factoring into your decision if you’re planning an eventual sale, not just ongoing rental or trading income.
Transferring an Existing Property Into a Company: A Genuine Cost, Not a Formality
If you already own commercial property personally and are considering moving it into a company structure now, it’s worth understanding this is treated as a genuine disposal for tax purposes – you’ll face Capital Gains Tax on any gain since acquisition, and the company will face Stamp Duty Land Tax on the transfer value, based on the property’s full market value regardless of what actually changes hands financially. This can be a genuinely significant cost, worth calculating properly before assuming a switch is straightforward.
Mortgage Availability and Pricing: A Genuine, If Narrowing, Gap
It’s worth knowing that commercial mortgage rates for limited company borrowers have historically run somewhat higher than equivalent personal-name lending, though this gap has narrowed considerably as more lenders have entered the limited company commercial market. For a highly leveraged purchase, it’s worth running the actual numbers on this rate difference alongside the tax comparison, rather than assuming the tax saving automatically outweighs any additional borrowing cost.
Personal Guarantees: A Genuine Trade-Off Worth Weighing
It’s worth understanding that company ownership typically brings a personal guarantee requirement most directors don’t face with straightforward personal-name borrowing. Our piece on personal guarantees on commercial mortgages covers exactly what this genuinely involves, worth reading alongside the tax comparison here, since the limited liability company ownership is meant to provide can be considerably narrowed by a guarantee sitting alongside it.
Directors Weighing Salary, Dividends, and Retained Profit
Our Company Director Mortgages page covers how salary, dividends, and retained profit are genuinely assessed differently for your own personal mortgage borrowing, worth reading alongside this page if commercial property ownership sits within your wider company structure and personal borrowing plans together.
Why This Genuinely Isn’t a One-Size-Fits-All Decision
Given how much depends on your specific tax band, whether profits will be reinvested or extracted, your existing company structure, and your realistic exit timeline, it’s worth having a proper conversation with an accountant and a commercial finance specialist together, rather than assuming either structure is automatically correct based on general commentary about property ownership.
Getting the Comparison Run Properly for Your Circumstances
Given how genuinely different commercial property’s tax treatment is from the residential buy-to-let rules many people default to assuming, it’s worth having this comparison run specifically for your own numbers before committing to either structure. Get in touch with details of your circumstances, and we’ll help you understand which route genuinely suits your situation.
Frequently Asked Questions
Does Section 24 restrict mortgage interest relief on commercial property?
No – this restriction applies specifically to residential buy-to-let; commercial property has always allowed full mortgage interest deduction for personal ownership too.
What’s the core tax rate difference between personal and company ownership?
Personal ownership is taxed at your Income Tax rate, up to 45%; company ownership is taxed at Corporation Tax rates, 19-25% depending on profit level.
Does company ownership always work out cheaper for higher-rate taxpayers?
Not automatically – extracting profit as dividends or salary creates an additional tax charge, narrowing the gap considerably if you plan to draw funds out rather than reinvest them.
Can I simply transfer my existing personally-owned property into a company?
You can, but it’s treated as a genuine disposal, triggering Capital Gains Tax on any gain and Stamp Duty Land Tax on the transfer value.
Do limited companies pay more for commercial mortgages than personal borrowers?
Historically somewhat more, though this gap has narrowed considerably as more lenders have entered the limited company commercial market.
Get in touch with details of your circumstances, and we’ll help you understand whether personal or company ownership genuinely suits your commercial property plans.
