The Property Tax Mistake That’s Costing Landlords a Fortune

In today’s episode, we tackle one of the most dangerous and misunderstood questions in UK property investing: should you buy buy-to-let properties in your own name or through a limited company?

It sounds simple — but the wrong decision could cost you thousands in unnecessary tax, higher mortgage costs, and ongoing accountancy fees.

We break down the real impact of Section 24 mortgage interest relief changes and explain why this single rule has pushed thousands of landlords towards limited companies — often without fully understanding the consequences. You’ll hear how landlords in their personal names can no longer deduct mortgage interest in the same way, and why this can lead to shockingly high effective tax rates .

But limited companies are not the silver bullet many believe them to be.

In this episode, we also explore the hidden downsides: double taxation when extracting profits, increased compliance and accountancy costs, and higher mortgage interest rates compared to personal ownership. We discuss why these factors can significantly impact your cash flow — even if the tax position looks better on paper.

We then shift to the opportunities. You’ll learn how limited companies can offer powerful advantages, including full mortgage interest relief, pension contributions, expense deductions, and long-term planning benefits such as passing wealth to family members. However, we also explain the risks of overcomplicating structures with family investment companies and alphabet shares — especially when lenders are involved.

Most importantly, this episode highlights why your long-term goals matter more than your current situation. A strategy that works for a high-rate taxpayer today may be completely wrong if your income changes in the future.

This is not generic advice. It’s based on real-world scenarios, real client conversations, and practical tax insights.

If you’re a landlord or property investor, this episode could save you from making a costly mistake.

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#PropertyInvesting, #BuyToLet, #LandlordLife, #UKProperty, #PropertyTax, #LimitedCompany, #TaxPlanning, #RealEstateUK, #InvestmentStrategy, #WealthBuilding

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Transcript

SPEAKER_00 0:00

Should you buy a buy-to-lect property in your own name or should you buy a buy-to-lect property in a limited company? And whichever one you choose is bound to be wrong. As a buy-to-lect property investor, one of the big questions that you will have is should I buy property in my own name or should I buy it in a limited company? And that's a very good question to ask. One of the things that you do need to be aware of is influentials. What I mean by that is not necessarily people on podcasts or on YouTube. It could well be people that you meet in a pub or in a property network meeting, or indeed your own mentor or coach who are not tax specialists, I might have to add. Now, the whole purpose of buying property in your own name versus a limited company does have its benefits and its disbenefits. That is clear. But let's run through what they might be. Buying property in your own name before all of these new trends, we're talking about before section 24 mortgage interest relief cap, buying a property in your own name made all the sense in the world. Everyone did that. There's very few that was using limited companies. So this trend of moving to a limited company was, by all purposes, a recent trend caused by section 24 mortgage interest relief cap, which means that you cannot offset all of the mortgage interest. In fact, you can't offset any of the mortgage interest cost against your rental income in your own name. You would get a 20% tax credit of the mortgage interest cost itself on your tax return. So that's a fundamental difference between buying in your own name now after Section 24 mortgage interest relief cap and buying it in a limited company where you do get that benefit of being able to offset all of the mortgage interest cost. I know. How on earth did we get to this stage? I don't know. But that's HMRC for you. And would you believe that was bought and introduced by the Conservative Party? Blow me, I wouldn't believe it either if you said this to me 10 years ago. Anyway, we are in this situation. So that's the main cause. Now, are there any major disbenfits of buying in a company? We'll get to the benefits in a second. The one disbenefit I would say is that if you have profits in a limited company, at some stage you will need to extract that money from the company into your name again. Which does mean that there's double taxation. First of all, you will have taxation on the limited company on the profits it makes after, of course, being able to offset 100% of the mortgage interest cost. So you will have less profit in the company. Now I did say this is disbenefit, so forgive me for that, but we'll come back to that element later on, shall we? So that idea of being taxed in the company and then having to take out dividends into your personal name means you will then suffer income tax on those dividends that you take out. So there's double taxation. But it does also mean that you've got this issue of taxation and accountancy fees because you've got a tax return to do for the company and then a tax return for you personally. As a result of that, your accountants rubbing their hands together because they have doubled the fees. Admittedly, I am open always to my clients to say a limited company does mean you'll have extra fees to be aware of. I have a hair in my face, I'm not sure where that's come from. So, if you've got double accountancy fees, does that say no you shouldn't do it? Well, that's not the case for everyone, but if you're thinking about just having one property and that's all, setting up a limited company and then having countenance fee fees for you and the company is double taxation, double fees. It may not be sensible to do that if you're just buying one property. So having a limited company would work if you're looking to build a portfolio for you and your family. So the other disbenefits I do find is mortgage interest costs. So the percentage of mortgage interest in your personal name will be less. I'm not going to say significantly less anymore, but it is still going to be less having a mortgage interest cost in your name compared to a limited company. And I can't give you rates. I'm not SCA regulated, I'm not a mortgage broker. So you do need to reach out to your mortgage broker to say, hey, I heard this guy on this podcast or YouTube channel saying that mortgage interest costs in a limited company is higher than in my personal name. Can you tell me more? And they will do that for you. But typically, I have observed from the thousands of landlords, property investors that we deal with day in and day out that mortgage interest costs are typically between 0.25 and 0.75% higher in a company than in their own name. So it does mean you've got accountancy fees, you've got higher mortgage interest costs, and whilst you can offset that in terms of getting the tax relief, doesn't always mean from a cash flow perspective it makes sense to use a company. So where does that leave us in terms of disbenefits? You do need to weigh up all of the associated costs of using a company structure with your tax advisor or accountants or with us at optimize accountants. It's really fundamental you do that. And I would say that looking at the way that you do your tax structure, we've got to look at the disbenfits as much as you do looking at the benefits. But that would be boring, wouldn't it? Just to look at the disbenefits. Oh, how negative. Let's look at the positives now, shall we? So the benefits of using a company, well, actually, there are a lot more than what people used to think. It was a way to save tax, right? Because the taxation rate for companies is 19% up to £250,000 when it goes up to two uh £25. And there's a middle ban now, of course, of circa £26.5. Don't get me started. This is a whole complicated way of calculating it. But any of your profits between £50,000 and £250,000, that middle ban is actually taxed at £26.5%. I know. Complicated, unnecessary for this video and podcast, if I'm totally honest with you. So let's get into some of the benefits anyway. So a lower tax ban. If you're a high-rate taxpayer paying 40%, well, in your own name, you think, well, as a high-rate taxpayer, 40%, well, maybe I can live with that, versus the limited company that pays 19%, ignoring 25% tax ban for now, but paying this 19%, plus I've got all these fees, it doesn't feel like it's much benefit to me. Well, actually, if you think about more section 24 mortgage interest relief cap, it's not 40% tax at all. If you look at the amount of income and then look at your mortgage interest costs and then other costs, you will get to earn an actual profit. But the way section 24 works is that it removes the mortgage interest cost and then taxes the gross profit, I would like to say, at 40%, and then it gives you a 20% tax relief on the mortgage interest cost. So in actual fact, you'll end up paying more tax. And it's fair and true to say, and this is horrible to say, that the people that make the money when buying property in your own name, especially for high-rate taxpayers, are the banks and HMRC. The individual who is a high-rate taxpayer that has got a portfolio in their name because of mortgage interest relief cap, section 24, it does mean that those guys are paying anything between 65% tax and one case I've seen, 230% tax. Now you might say, how on earth is that possible? It's because they was following this buy, reverb, refinance strategy and mortgaging the property to a hilt. That is a significant problem because now they've got more mortgage interest costs, they cannot offset that against their rental income, and therefore they don't get that tax relief. So it's significant, significant enough to be a concern. Okay, so then what are the other advantages around this? If it's not just tax, what are those? Well, first of all, the fact that you can have this company can pay other things for you. So let's think about this. I'm speaking to you on the camera on this microphone. Now, if I'm wearing glasses because I need this for work, I could offset that cost of optician's appointments and glasses against my limited company profits. So I get some other benefits. I can have some vouchers paid to me, £25 a month, and I can put that against Amazon vouchers, and then I can spend that or give it to my son at the end of the year. There you go. There's your Christmas present, and by the way, that's all through the Limited Company. Thank you very much. There are other benefits. I can put in as much money as I want to in my pension. Now that's not true, because you can pay up to £60,000 per annum into your pension pot from your limits company. So therefore, your limited company has a cost, which is reducing the taxable profit of the company by your pension contributions again back up to 60,000 pounds. So there are other benefits. Company car. If you have an electric car, there are significant benefits there, whereby again you can get capital allowances on a company car, which you couldn't do any of this in your own personal name. So some of the cost line items that you can get using a company, which you couldn't get through your personal yourself, is a huge, huge benefit because actually now you're being able to reduce your taxable profits, paying less tax, and then when you do take the money out in form of dividends, you're getting even less tax than ever before. So there are some benefits there. Some of the other side benefits you might have is again thinking about long term. Could you give your business over to your children? Could you use something called alphabet shares or ABC shares? This is possible, and please don't jump onto the bandwagon of this and saying, yes, I'll do this straight away now. Let me tell you the reason why I'm saying that family investment companies, alphabet shares, ABC shares, they work and they don't work. They work for people that don't need finance. The moment you start giving your children, minors especially, or you start spreading the share base across multiple people in your family, your lenders will want to know who they are. They will want to know: are they credit worthy? Are they going on the mortgage application? Who are they? How much money do they take? What's their role in the company? Now it's a greater risk. Your application forms to get finance is now gone up a huge amount of paperwork. And if you don't like mortgage application papers like I don't, then having this kind of new share structure in place where you've got children, blah blah blah, the lenders may actually say we don't want to work with you at all. So now you've blown it. And I've seen a lot of people whereby they've spent thousands and thousands and thousands of pounds working with tax advisors who put this tax structure in place only to find out that lenders will not work with them and they've got to then remove all of their children again, which costs another set of thousands and thousands, thousands of pounds to correct all their paperwork. And the banks have now delayed the mortgage application, which could mean that the deal has fallen through. So, can you see what I'm saying? That if you want a good tax structure, you do need to think about what the banks want as well. Alright, so that's the main point. If you need finance, then creating complexities of family investment companies, alphabet shares, ABC shares, etc., may not be appropriate. But if you don't need finance, then actually you can start gifting shares to your children, which has the benefit long term of reducing inheritance tax. So there are some other benefits there as well. So overall, there are benefits and there are some disbenefits. But what is right for you? Just because you've watched a YouTube video, just because you've watched this brilliant podcast, and by the way, it doesn't need to be mine, it could be anyone's. But just because you've done that doesn't mean you should implement that strategy without talking to someone first. And it could be that person that's doing the video or the podcast. You might reach out to them and say, Hey, how can I can this work for me? And they have a duty to say if it does or not. And that is the point. You need to have a conversation. You could take that video, that podcast that you've watched and listened to, and go back to your accountant and say, I've heard this, does this work for me? What you don't want to do is just bypass your current accountant and tax advisor and dismiss them that they're not proactive, they're not helpful just because you've now got this new information and you think it's right for you and they're not being proactive. Actually, they may be proactive, they may have the answers for you, but you do need to engage with them for them to have that conversation with you first. So limited company works for many, many people, but limited companies work also for not that many people, depending on your situation. Having a buy-to-elect property portfolio in your name makes a lot of sense. Let me give you an example before I finish. I had a conversation maybe three, four months ago, and they came to me, it was an ad hoc tax call, and they asked me about this advice they've been given about using a family investment company. It was going to cost them £20,000. And I asked the beautiful question, What do you want long term? And they said, Well, we're looking to give up our jobs and we're looking to get properties maybe that gives us £20,000, £30,000 per year profit. I thought, why does the limited company make sense anyway? There are going to be basic rate taxpayers. So their tax rate is going to be 20%. The mortgage interest relief cap, even on section 24, is 20%. So section 24 mortgage interest relief cap does not affect them. But what the accountant tax advisor was saying to them is based on your current situation, they were working as high-rate taxpayers, but it was going to give up their job and take retirement and then build up this product portfolio up to maybe £20,000, £30,000 to top up their pension. And the tax advisor in question didn't even ask what the long-term goal is going to be, just what is your current situation? So the current situation was right to use a company structure. And having a family investment company, could that work? It may be, but actually, in their time of life, it didn't work. And actually buying property in their own personal names made a lot more sense. So they were able to get the same tax reliefs using their own name rather than the company. They was able not to have double taxation issues, and they was able to save on the accountancy fees. So do you think that that person was pretty happy talking to me about their tax structure? Well, you bet your bottom dollar they were, because it saved them time and hassle going through this complex tax structure that really didn't work for them. So limited companies? Right for them? Of course not. So ask yourself this question Does a limited company make sense for me? Take some time before you implement anything, answer it well, and then execute on that decision.