SPV vs personal ownership: the tax decision for landlords

Since the restriction of mortgage interest tax relief for individual landlords, holding buy-to-let property in a limited company (a Special Purpose Vehicle, or SPV) has become popular. But it is not automatically the right answer - and the costs can outweigh the relief if you do not run the numbers.

The tax relief difference

As an individual landlord, mortgage interest relief is restricted to a 20% tax credit. For higher-rate taxpayers, this means you lose a significant chunk of relief. Inside an SPV, mortgage interest is fully deductible from rental profit before corporation tax is calculated.

For a higher-rate taxpayer with a large portfolio, this can be a genuine saving. For a basic-rate taxpayer with one property, the difference is small.

The costs of incorporation

Setting up and running an SPV is not free. There are company formation costs, accountant fees, and potentially capital gains tax and stamp duty if you transfer existing properties into the company. Mortgage rates for SPVs are also typically 0.25% to 0.75% higher than for individual landlords.

The extraction problem

Profit inside the SPV is subject to corporation tax (19% to 25%). To use that money personally, you extract it via salary or dividends - and that carries personal tax. So the tax efficiency depends on whether you need the rental income now, or can leave it in the company to grow the portfolio.

When incorporation wins

Incorporation usually wins for higher-rate taxpayers who are reinvesting rental profit into more property, not extracting it to live on. The full interest deductibility compounds across a growing portfolio.

When it does not

It usually does not win for basic-rate taxpayers, or anyone who needs the rental income to live on (because extraction eats the saving). It also rarely wins for a single property with a small mortgage.

What we do

We are mortgage advisers, not accountants - but we work alongside your accountant (or refer you to one) to model the tax position before you decide. Then we find the lender that fits your chosen structure, whether personal or SPV. We will not push incorporation if the numbers do not support it.