If you are a landlord or prospective landlord, you will undoubtedly have picked up on the hype around topics such as Section 24, and the increasing popularity of buying properties through limited companies. We'll explain the basics and take you through a simple comparison between company and personal buy-to-let.

Section 24 and how it has affected landlords' habits

The Section 24 phase in effectively means that landlords will only be able to claim tax relief on mortgage interest and other financing costs at the basic rate of tax. 

In other words, it will mean significant extra tax bills for landlords who are already higher-rate taxpayers, and will push some landlords who are currently basic rate taxpayers into higher-rate tax. 

According to a survey by Simple Landlords, 47% of landlords have changed their investment plans as a result of these tax changes, and 6% plan to sell up completely (or have already done so). And a survey by the Residential Landlords Association showed that 25% of landlords are planning to sell one or more properties in the coming year. 

Company buy-to-let vs Personal buy-to-let

Another effect Section 24 has had on landlords is the shift to company buy-to-let. Landlords can set up a limited company and buy a property using that company, or transfer ownership of an existing property.

The benefit of this?

- Tax; corporation tax is currently 19% and is set to reduce to 17% in 2020. That’s a lot lower than the 40% higher rate, and 45% additional rate tax.

- Offsetting costs: Mortgage interest can be offset completely against tax as a business expense.

But it’s not the right option for everyone.

You’ll probably need to pay stamp duty and capital gains tax if you transfer a property to a company, as the legal ownership will have changed. 

How do I make money from company ownership?

You’ll need to get your money out of the company (unless you plan to reinvest all of it), which leaves you liable for more tax. You can get £2000 of dividends tax-free, and then pay between 7.5% and 38.1% tax depending on your tax band. Alternatively you can pay yourself a salary, as an employee of the company. You’ll need to register your company for PAYE (pay as you earn), and pay national insurance and income tax on your salary to HMRC every month (even if you don’t pay yourself monthly). Your company will need to pay employer's national insurance on top of that – which is 13.8% of your salary each month.

Another consideration is that you may also find it harder and more expensive to get a mortgage as a company, though more and more lenders are offering competitive limited company buy-to-let mortgages.

Read our basic guide to a buy-to-let mortgage 

Try our buy-to-let mortgage calculator

Always talk to your accountant, financial adviser or solicitor to help you make the best choice for you.