Guide · 9 min read
How rental profit is taxed inside a company: the 19% small profits rate, the 25% main rate, marginal relief between £50k and £250k, and what counts as deductible.
Written by Matt Lenzie · Published 10 June 2026
Advice from
Matt Lenzie · 25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
25+ year career banker (Bank of Scotland, Lloyds Banking Group). £300m+ raised for property clients.
Corporation tax on rental income is the tax a UK limited company pays on its property letting profit, charged at 19% to 25% on rent minus deductible costs, with mortgage interest deducted in full. It replaces the income tax an individual landlord would pay on the same property, and the difference between the two regimes, in rate, in interest treatment and in what happens to the profit afterwards, is the engine behind the shift of UK buy-to-let into companies.
This guide is the long version: the rates and thresholds, what is deductible and what is not, how the company regime compares with personal income tax line by line, how the profit comes out, what happens on sale, and the filing mechanics. We arrange the mortgages that sit inside these structures rather than the tax returns, so treat everything here as general guidance and confirm your own numbers with your accountant.
A UK company that lets property is carrying on a property business for tax purposes, and its letting profit forms part of the company's total taxable profits, charged to corporation tax. HMRC's framing is worth internalising because it drives everything else: the company is taxed on profit, not on rent. Rent received is the top line; from it the company deducts the costs of running the lettings, and corporation tax applies only to what is left.
Three features distinguish the company regime from personal rental taxation:
Two scope notes before the detail. The company's property profit is computed on the accruals basis, rent earned in the period rather than rent banked, with the accounts and the tax computation following the same recognition; the cash basis available to small personal landlords does not apply to companies. And the regime is not limited to UK-resident companies: non-UK resident companies letting UK property have been inside corporation tax on their UK rental profits since April 2020, so an overseas holding structure does not escape the rules in this guide, it merely complicates the filing.
The company in question is usually a special purpose vehicle, a property company doing nothing but holding and letting its own real estate, because that is the shape buy-to-let mortgage lenders insist on. The tax rules in this guide apply equally to a trading company that happens to own a rental, but the mortgage market treats that company very differently; see our guide to the SPV vs trading company distinction.
For the 2026 financial year the structure is:
| Total profits | Rate | Notes |
|---|---|---|
| Up to £50,000 | 19% | Small profits rate |
| £50,000 to £250,000 | Effective 19% to 25% | Marginal relief; the slice between thresholds bears an effective 26.5% |
| Over £250,000 | 25% | Main rate on all profits |
A company with £40,000 of rental profit pays £7,600. A company with £80,000 pays 19% on nothing, the marginal relief calculation applies to the whole figure, working out to £17,950, an effective rate of about 22.4%. The marginal band's effective 26.5% on each extra pound between £50,000 and £250,000 is higher than the main rate itself, a quirk that surprises landlords whose profits are growing through the band.
The marginal relief mechanics, since they catch growing portfolios, deserve the worked version. The company starts from the main rate and claims relief back: tax is 25% of profits, minus a fraction (3/200) of the gap between the £250,000 upper limit and the profits. For the £80,000 company: 25% of £80,000 is £20,000; relief is 3/200 × (£250,000 less £80,000) = £2,550; tax payable £17,450 plus a small adjustment where distributions are in the mix, in round terms the £17,950 above once the calculation is run on HMRC's full method. The practical reading for a landlord is simpler than the formula: the first £50,000 of profit effectively bears 19%, and each pound after that bears 26.5% until £250,000, after which everything is at 25%. A portfolio company whose profits are crossing £50,000 is facing a steeper marginal rate than a company twice its size, and decisions like timing a sale, bringing forward a refurbishment or making a pension contribution move real money at that boundary.
Two multipliers change the thresholds and catch property investors disproportionately:
Associated companies. The £50,000 and £250,000 thresholds are divided by the number of companies under common control. A landlord who, on old advice, holds six properties in six separate SPVs has a small-profits threshold of £8,333 per company; profits above that in any one of them start climbing toward the main rate via marginal relief. The one-property-one-company habit made sense in an era of flat corporation tax; today it can cost real money, and it complicates lending too, since portfolio mortgages against a single multi-property company are often both cheaper and simpler than six separate facilities.
Short or long accounting periods. The thresholds are also pro-rated for accounting periods shorter than twelve months, which matters in a company's first year.
The deduction rules follow ordinary business principles: expenses incurred wholly and exclusively for the property business come off the rent before tax. The everyday list:
The recurring confusion is the capital boundary. Improvements are not deductible against rent. Building an extension, adding a bathroom, converting a loft: these are capital expenditure, added to the property's base cost and relieved only when the company sells, by reducing the chargeable gain. Replacing a tired kitchen with a broadly equivalent modern one is a repair (deductible); upgrading a two-bed into a three-bed is an improvement (capital). Real refurbishments usually contain both, and apportioning the invoice is precisely the kind of judgement your accountant should make with the paperwork in front of them.
Furnished lettings get a specific relief: the replacement of domestic items. When the company replaces a sofa, white goods, carpets, curtains or crockery with a broadly equivalent item, the replacement cost is deductible; the initial purchase of those items when first furnishing the property is not. Capital allowances, the mechanism trading companies use to write off equipment, are generally unavailable for assets inside a dwelling, which is why the replacement relief exists. They do apply to genuine common-parts plant in larger buildings (a lift, communal heating in a block held by the company) and to the company's own office equipment, modest territory for a standard SPV but worth capturing. Keep the invoices; the categories are easy to evidence at the time and tedious to reconstruct three years later.
Losses are flexible in the company regime: a property business loss is set against the company's other profits of the same period or carried forward against future total profits. A personal landlord's rental loss, by contrast, can only be carried forward against future rental profit. For a portfolio absorbing a heavy repair year, the company's treatment is kinder.
Mechanically, the company's loan relationships (its borrowing) generate debits, interest and finance costs, that are deducted in computing taxable profit. Practically: every pound of mortgage interest reduces the profit on which corporation tax is charged. There is no restriction equivalent to Section 24, no tapering by the size of the company, and no distinction by the lender type, the deduction covers interest on the limited company buy-to-let mortgage, on bridging finance during a refurbishment, and on a properly documented director's loan if the company pays the director interest.
A worked year for a single-property SPV:
| Amount | |
|---|---|
| Rent (£1,150 × 12) | £13,800 |
| Agent, insurance, repairs, accountancy | (£2,900) |
| Mortgage interest (£165,000 at 5.5%, interest-only) | (£9,075) |
| Taxable profit | £1,825 |
| Corporation tax at 19% | £347 |
| Retained in the company | £1,478 |
Notice how dominant the interest line is: on a typical 75% loan-to-value purchase, finance costs are the largest expense by a multiple, which is exactly why the deduction's loss hurt personal landlords so much. It is also why the interest-only structure is standard on company buy-to-let, every pound of payment is deductible, where capital repayments would not be; the logic is unpacked in our guide to limited company interest-only mortgages.
One discipline matters here: the borrowing must belong to the property business. Interest on funds the company lends on to a director for personal use, or on borrowing unrelated to the lettings, is challengeable. Keep the company's debt clean and attributable.
The comparison has three moving parts: the rate, the interest treatment, and what happens above £100,000 of personal income.
Take the worked property above, £13,800 rent, £2,900 costs, £9,075 interest, owned instead by a higher-rate taxpayer personally. Section 24 (in full force since April 2020) removes the interest deduction and substitutes a 20% credit:
| Higher-rate individual | Limited company | |
|---|---|---|
| Taxable figure | £10,900 (rent minus costs only) | £1,825 (interest deducted) |
| Tax before credit | £4,360 at 40% | £347 at 19% |
| Interest relief | £1,815 credit (20% of £9,075) | Already in the computation |
| Tax paid | £2,545 | £347 |
| Cash after mortgage and tax | (£720) negative | £1,478 |
The individual is cash-flow negative on a property the company holds at a profit. For a basic-rate taxpayer the gap nearly closes (their 20% rate is matched by the 20% credit); for an additional-rate taxpayer it widens further. The structure of the whole comparison, including the second tax layer on extraction, is in our companion guide to limited company buy-to-let tax, and the limited company vs personal calculator runs your own figures through both regimes.
The table above is the higher-rate case, and it should not be generalised. Run the same property for a basic-rate taxpayer: the personal tax bill is £2,180 at 20% minus the £1,815 interest credit, £365, almost identical to the company's £347, and without the company's accountancy costs, slightly higher mortgage rate or extraction layer. The Section 24 credit at 20% effectively restores full relief for someone whose marginal rate is 20%, so the company's flagship advantage evaporates. The structure still has arguments for the basic-rate landlord who expects to become higher-rate, or who is building toward a portfolio, but as a pure tax play it is usually a draw or a small loss. The right comparison is always your own marginal rate, your own leverage and your own extraction needs, which is what the calculator below is for.
Between £100,000 and £125,140 of personal income, the personal allowance withdraws at £1 for every £2, creating an effective 60% marginal rate. Personally held rental profit pushes directly into this band, and Section 24 sharpens it: the taxable figure includes interest you never kept, so a modest real profit can carry a large notional income into the taper. The same applies at the £100,000 cliff edges for childcare entitlements. Profit inside a company simply does not appear on your personal return until extracted, which gives six-figure earners control over the timing that personal ownership denies them. The planning around the band is individual enough that it belongs with your accountant, but the structural point stands: the company puts a valve on the pipe.
This is among the most-asked questions at our desk, usually in the hopeful form "can the rent just be paid to my company?" The answer is no. Income follows ownership: HMRC taxes rental profit on the person or company that owns the interest in the property, and invoicing arrangements do not move it. Paying your personally owned property's rent into a company bank account leaves the tax position untouched and creates a bookkeeping mess.
The genuine routes into the corporation tax regime are:
The arithmetic of the transfer route deserves one honest illustration, because the marketing around incorporation rarely shows it. A landlord moving a £300,000 property bought at £180,000 into their company faces capital gains tax on the £120,000 gain (up to £28,800 at 24%, absent Section 162 relief), roughly £20,000 of stamp duty on the company's market-value acquisition, conveyancing and valuation costs, plus any early repayment charge on the existing personal mortgage. Call it £50,000 of cost to relocate one property's income into the corporation tax regime. If the annual saving inside the company is £2,500, the move repays itself in twenty years; if the saving is £6,000 on a heavily leveraged higher-rate case and the relief shelters the CGT, the payback drops under four. Both outcomes are common, which is why "should I incorporate?" has no general answer, only a calculated one.
Corporation tax is layer one. The shareholder's tax on extraction is layer two, and the company's overall efficiency depends on managing it:
A worked extraction year ties the layers together. The single-property SPV above retains £1,478 after corporation tax. Suppose the director originally lent £68,000 in (deposit, stamp duty, costs) as a director's loan. For the first several decades of the property's life, every pound of that £1,478 can be drawn as loan repayment at a 0% second layer, the director receives the full amount, and the company's books simply show the loan balance falling. Contrast the same pound drawn as a higher-rate dividend: 33.75% goes to HMRC, leaving £979 of the £1,478. Across ten years that is roughly £5,000 of tax difference on one modest property, purely from the order in which money is taken out. Scale it across a portfolio and the sequencing decision is worth more than most rate negotiations.
The pattern that works for most landlord clients, subject to their accountant's blessing: repay the director's loan first, fill cheap dividend capacity (a basic-rate spouse's band, the £500 allowances) second, retain the rest for the next purchase, and let pension contributions absorb peaks. The pattern that fails: drawing everything, every year, at higher-rate dividend tax, and then wondering where the advantage went.
When the company disposes of a property, the chargeable gain, sale proceeds minus original cost minus capital improvements minus selling costs, is added to its profits for the period and taxed at the same 19% to 25% corporation tax rates. Points of difference from personal CGT worth knowing:
A worked disposal: the company bought at £220,000 with £4,000 of capital purchase costs and £13,100 of stamp duty, spent £15,000 converting a garage into habitable space (capital, not repairs), and sells at £300,000 with £4,500 of selling costs. The chargeable gain is £300,000 less £220,000 less £4,000 less £13,100 less £15,000 less £4,500 = £43,400. If the company's total profits for the year, rental profit included, stay under £50,000, the tax is £8,246 at 19%; if the gain lands on top of £30,000 of rental profit, part of the total sits in the marginal band and the blended rate climbs. The stamp duty and the garage conversion, neither of which was deductible against rent in the years they were paid, finally do their tax work here, which is why the capital expenditure file matters for as long as the company owns the property.
The compliance calendar is the company's responsibility from incorporation, and lenders read the filings, late accounts at Companies House are visible to every underwriter who looks. The cycle for a typical SPV:
The deadlines have teeth. Late accounts at Companies House trigger automatic civil penalties that escalate with delay and double for a second consecutive year; a late CT600 starts at a £100 penalty and escalates; and late corporation tax payment accrues interest from the due date at a rate pegged above base. None of these sums is ruinous on a small SPV, but the public ones are visible, an underwriter checking Companies House sees the filing history alongside the SIC code, and a company that files late reads as a company that runs late. Records, rent statements, invoices, the director's loan ledger, the capital expenditure file, must be kept for at least six years.
Budget £400 to £900 a year for a property-specialist accountant to run all of this for a small SPV, deductible, and worth it. Keep the rent in the company account, the expenses paid from it, and the director's loan documented, and the year-end is an email rather than an excavation.
The errors we see recur, and most are cheap to avoid: rent collected into a personal account and "sorted out later", which muddies both the company's records and the director's loan ledger; repairs and improvements lumped into one invoice line, surrendering deductions or overstating them; the director's own deposit never documented, weakening the tax-free repayment claim years later; and dividends drawn casually through the year without checking distributable reserves, which makes them unlawful as a matter of company law, not just untidy. None of this requires sophistication, only the habit of treating the SPV as a real business with its own money from the first day.
One final mortgage-side note, because it is where this guide and our day job meet: lenders underwriting a company case look at the same numbers HMRC does. Retained profit, clean filings and a sensible balance between debt and rent all feed the lending decision, and the interest coverage ratio that sizes the loan is itself built on the tax logic above, companies are stressed at 125% cover rather than the 145% applied to higher-rate individuals, precisely because the taxman takes less of the rent. Run your own purchase through the calculator, talk to your accountant about the tax, and talk to us about the lending: the structure works best when all three line up before anything is signed.
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