Your Income Tax Band (Personal Ownership & Dividends)
Tax Difference
£1,249
Holding via a limited company costs less tax overall, even after dividend tax on what you extract.
Held Personally
Held via Limited Company
Illustrative only. Excludes stamp duty and capital gains tax triggered by incorporating an existing personally-held property, the typically higher mortgage rates and lower LTVs lenders offer limited companies, and the tax due if the company is eventually wound up or sold rather than dividends drawn each year. Personal allowance tapering and other income stacking with your rental profit aren't modelled. Always take professional tax advice before choosing a structure.
What This Calculator Does
This tool compares the real after-tax return of a new buy-to-let purchase held personally against holding it through a limited company — using the same rental income, mortgage interest, and expenses for both. Unlike a simple corporation-tax-vs-income-tax comparison, it also taxes the dividends you draw out of the company, because that's the tax bill that actually lands when you spend the money.
Set your income tax band, how much of the company's after-tax profit you plan to extract as dividends each year, and any extra running costs of the Ltd structure — the calculator works out corporation tax, dividend tax, and the equivalent personal income tax automatically.
How the Calculation Works
Personal: income tax is charged on (rental income − other expenses) at your marginal rate, with mortgage interest given only a 20% tax credit rather than being deducted — the Section 24 rules phased in from 2017.
Limited company: corporation tax is charged on (rental income − other expenses − mortgage interest − running costs), since interest is a fully deductible business expense. Whatever you then draw out as a dividend is taxed again at dividend rates (8.75% / 33.75% / 39.35%) after a £500 tax-free dividend allowance — profit left in the company isn't taxed again until it's extracted.
The tax difference compares your personal income tax bill against the combined corporation tax plus dividend tax on what you actually extract. Leaving more profit in the company (a lower extraction %) defers dividend tax but doesn't eliminate it — that money is still taxed whenever it eventually comes out.
Worked Example
A higher-rate (40%) taxpayer with £15,000 annual rent, £6,000 mortgage interest, £2,000 other expenses, £700 Ltd running costs, extracting 100% of profit as dividends.
- Rental income: £15,000
- Other expenses: £2,000 → profit before interest: £13,000
- Personal: income tax = £13,000 × 40% = £5,200, minus 20% credit on £6,000 interest (£1,200) = £4,000 due
- Real cash profit: £15,000 − £2,000 − £6,000 = £7,000
- Ltd: taxable profit = £7,000 − £700 running costs = £6,300 × 19% = £1,197 corporation tax
- Dividend: £6,300 − £1,197 = £5,103 extracted, minus £500 allowance × 33.75% = £1,553 dividend tax
Personal tax due is £4,000. Ltd company tax comes to £1,197 + £1,553 = £2,750 combined — still £1,250 cheaper through the company even after dividend tax, but nowhere near the gap a corporation-tax-only comparison would suggest.
Frequently Asked Questions
Why include dividend tax when comparing to Section 24?
Corporation tax alone understates what a limited company actually costs you, because company profit isn't your money until you extract it. Comparing corporation tax against personal income tax makes a Ltd company look better than it really is for anyone planning to draw the profit out and spend it — this calculator adds that dividend tax back in so the comparison reflects cash you can actually use.
Is a limited company always cheaper once dividend tax is included?
No. At the basic rate, extracting 100% of profit as dividends often makes personal ownership cheaper once you add corporation tax and dividend tax together, since the combined rate can exceed the 20% personal rate. The Ltd company advantage grows with your tax band and gearing (how much mortgage interest you're restricted from deducting personally) — it's strongest for higher and additional-rate taxpayers with large mortgages.
What happens if I don't extract all the profit as dividends?
Dividend tax is only due on what you actually withdraw. Profit left in the company is taxed once, at corporation tax rates, and can be reinvested into further deposits or held back — but it will be taxed again (as a dividend, or via capital gains tax if you sell your shares or wind up the company) whenever it eventually reaches you personally, so retaining profit defers tax rather than avoiding it.
Do I pay National Insurance on rental income either way?
No — rental income isn't subject to National Insurance for either an individual landlord or a limited company, regardless of how the profit is structured. This is one of the few areas where personal and Ltd ownership are treated identically.
Should I incorporate a property I already own personally?
Not automatically. Transferring an existing property into a limited company usually counts as a sale for tax purposes, triggering capital gains tax and stamp duty land tax on the transfer (with no first-time-buyer or multiple-dwellings relief), plus the cost of a fresh mortgage in the company's name — often at a worse rate than your existing personal deal. Incorporation tends to make more sense for new purchases than for restructuring an existing portfolio. Get professional tax advice before making the move.