Small Landlords: Company vs Personal Ownership—Which Is More Tax-Efficient?

Property Ownership: Personal vs Company, US and UK Tax

Choosing between personal and company ownership for rentals determines how income is taxed, how losses flow, how lenders underwrite you, and how much you take home on exit. Make the choice with a full view of taxes, financing, governance, and the resale market, and you avoid mid-course restructures that lock in avoidable taxes and fees.

What your ownership choice actually changes

Personal ownership means you hold title in your name or with a spouse and you report rental income on your return. Company ownership means a separate legal entity holds title and pays tax before you take money out. The choice affects cash taxes, interest deductibility, loss usability, lender requirements, and exit options. In practice, the best structure is the one that lowers after-tax leakage without blocking financing or a future sale.

Legal forms and ring-fencing that lenders actually accept

United States: LLCs dominate for rentals

In the United States, you can hold directly, use an LLC taxed as a disregarded entity for a single owner or as a partnership for multiple owners, elect S corporation, or use a C corporation. Tax follows your election and the Internal Revenue Code, not the name on your certificate. An LLC gives limited liability under state law, but many small-balance lenders still require personal guarantees, which brings some risk back to you. Key tax outcomes vary by election:

Single-member LLC: Disregarded for tax. Income and deductions land on Schedule E. You get simple compliance and the same tax as personal title with better liability segregation.
Multi-member LLC: Partnership by default. Allocations follow the operating agreement and economics. You gain flexibility on allocations and basis from shared debt.
S corporation: Pass-through with tight basis and eligibility rules. Often unhelpful for long-term rentals because net rents are not subject to self-employment tax anyway and 1031 exchanges get awkward.
C corporation: Corporate tax plus shareholder tax on dividends. The second layer of tax can erode cash yield during hold and on exit.

United Kingdom: Ltd companies and LLPs are common

In the United Kingdom, you can hold directly, use a private company limited by shares (Ltd), or use an LLP that is transparent for tax. Letting is usually treated as investment, not trading, so trading reliefs seldom apply. A company gives ring-fencing and fits lender products marketed as limited company buy to let. However, guarantees still surface for many borrowers. LLPs are transparent, so members are taxed directly. A frequent practical structure is a simple property SPV for clarity with lenders and partners.

How cash moves through the structure

Capital comes from owners and mortgages secured on the property. Lenders often take an assignment of leases and rents and may also ask for a pledge of your entity interests and a personal guarantee. Structure does not erase that exposure. Income is rent. Outflows are operating costs, property taxes, insurance, interest, and capital expenditures. Non-cash deductions reduce taxable income without reducing cash, which creates timing benefits. On distributions, US pass-throughs tax you based on allocations rather than cash paid. US C corporations add a dividend layer. UK companies pay corporation tax, then dividends are taxed to shareholders. For exits, the titleholder sells the asset. Company asset sales create company-level tax. Pulling proceeds up to owners adds another layer unless you sell the shares, which small buyers often resist due to diligence and latent tax.

The US tax lens: how pass-throughs win most rental cases

Income, loss, and NIIT

Rental income is generally passive. Individuals report on Schedule E. Partnerships and S corporations issue K-1s. Passive losses do not offset wages or portfolio income unless you qualify as a real estate professional or you meet specific short-term rental exceptions. High earners can face the 3.8 percent net investment income tax on net rental income unless the activity is non-passive. The fast impact is simple: losses can trap, and NIIT adds a top-up at higher income levels.

Depreciation and bonus

Residential property uses a 27.5-year straight-line life; nonresidential uses 39 years. Cost segregation can reclassify components to shorter lives. Bonus depreciation on qualifying non-structural assets is phasing down: 60 percent in 2024, 40 percent in 2025, 20 percent in 2026, then zero without an extension. This supports front-loading deductions while bonus remains.

199A (QBI) timing

Qualified business income deduction can reduce taxable income by up to 20 percent if the rental rises to a trade or business and other limits are met. It is scheduled to sunset after 2025 without new law. Model a world without it for long holds and refinance cycles.

Self-employment tax

Long-term rental income is not subject to self-employment tax. This makes S corporations unnecessary for pure rentals absent a separate service business. Keeping the structure simple usually wins.

Entity-level taxes and SALT workarounds

C corporations pay 21 percent federal tax and shareholders pay dividends tax. Retaining cash defers the second layer but sets up double taxation on extraction or exit. State and local rules vary. Many states allow pass-through entity tax elections for partnerships and S corporations, which can improve federal deductibility for owners. C corporations do not benefit from those elections. Transfers into entities can trigger transfer taxes in some jurisdictions.

Like-kind exchanges and basis

A 1031 exchange defers gain on qualifying real property swaps. Pass-throughs fit 1031 planning and allow owners to manage basis and replacement property allocations. C corporations can exchange at the entity level but do not deliver individual basis step-ups without added structuring. In partnerships, allocations of qualified debt increase basis and can unlock loss absorption. S corporation shareholders do not get debt basis unless they lend directly.

US numbers: a simple comparison

Assume rent of 30,000 dollars, operating costs of 10,000 dollars, interest of 6,000 dollars, a building basis of 300,000 dollars, depreciation of 10,909 dollars, a 32 percent bracket above NIIT thresholds, passive status, and QBI eligibility. Ignore state tax. In a personal title or pass-through LLC, net taxable income is about 3,091 dollars. The estimated QBI deduction reduces that to about 2,473 dollars. Federal income tax at 32 percent is about 791 dollars, NIIT on 3,091 dollars is about 117 dollars, so the total is about 908 dollars. Cash profit is 14,000 dollars, so the effective federal burden is about 6.5 percent of cash profit. In a C corporation, the company pays about 649 dollars at 21 percent. If it distributes the rest, shareholder tax near 18.8 percent produces a combined burden around 3,158 dollars or about 22.6 percent of cash profit. Deferral can help inside a C corporation only when distributions are small and delayed.

Edge cases that move outcomes

Real Estate Professional Status: Material participation can unlock passive losses against other income for the right facts.
Short-term rentals: Hotel-like operations can be non-passive and may alter NIIT and self-employment tax.
199A sunset risk: The benefit may lapse after 2025. Rerun models for longer holds.
BOI compliance: From 2024, most entities must file beneficial ownership information. Add this to your formation checklist and update on changes.

The UK tax lens: why companies often fit leveraged higher-rate owners

Section 24 finance cost restriction

Individuals cannot deduct mortgage interest from rental income. Instead, they receive a basic rate tax credit equal to 20 percent of finance costs. This pushes highly leveraged, higher-rate owners toward company structures. For deeper background, see Section 24 guidance for landlords.

Corporation tax and interest relief

Companies deduct finance costs fully, subject to the Corporate Interest Restriction. CIR caps net interest at 30 percent of tax EBITDA and has a 2 million pounds de minimis that covers many small portfolios. The main corporation tax rate is 25 percent for larger profits, with a 19 percent small profits rate and marginal relief in between.

Dividends and extraction

After corporate tax, dividends face 8.75 percent, 33.75 percent, or 39.35 percent rates with a small annual allowance. Frequent, full distributions dull the company advantage. Owners who can retain profit for reinvestment tend to benefit most from company ownership.

Gains and exit paths

Individuals pay capital gains tax on residential gains at 18 percent or 24 percent from April 6, 2024, after the annual exemption. Companies pay corporation tax on gains without an annual exemption and no post-2017 indexation. Distributing proceeds adds dividend or liquidation tax. Business Asset Disposal Relief rarely applies to pure investment companies. Because buyers often prefer asset purchases over share purchases, model the likely route for your properties and the taxes that follow.

SDLT, surcharges, and mid-course transfers

Additional dwellings incur a 3 percent surcharge. Companies always pay that 3 percent on residential purchases and may face a 2 percent non-resident surcharge. Moving personally held property into a company is usually both a CGT and stamp duty event unless partnership incorporation relief applies. If SDLT is new to you, start with this concise overview of SDLT bands and surcharges.

ATED filings

Companies holding UK residential property valued above 500,000 pounds must file annual returns. Commercial letting can qualify for relief, but you must claim it on time to avoid charges.

UK numbers: a simple comparison

Assume rent of 24,000 pounds, allowable costs of 6,000 pounds, interest of 10,000 pounds, a higher-rate taxpayer, a 25 percent corporation tax rate, and no remaining dividend allowance. Personally, taxable profit before finance is 18,000 pounds. Income tax at 40 percent is 7,200 pounds, then a 2,000 pounds finance cost reducer applies, for net income tax of 5,200 pounds. Cash profit is 8,000 pounds, so the effective tax is about 65 percent of cash profit. In a company, profit after interest is 8,000 pounds. Corporation tax at 25 percent is 2,000 pounds, leaving 6,000 pounds. If fully distributed, dividend tax at 33.75 percent is about 2,025 pounds, for a combined 4,025 pounds or about 50.3 percent of cash profit. If retained and reinvested, current tax is only 2,000 pounds. A basic-rate taxpayer, by contrast, would owe about 1,600 pounds personally and may prefer personal ownership if leverage is low and distributions are needed.

Accounting, reporting, and filings you must plan for

United States

Individuals report rentals on Schedule E. Partnerships and S corporations issue K-1s. Many small landlords use simple cash books, but lenders may want accrual statements and debt service coverage measures. Keep accounting at the level your lender expects and your portfolio complexity requires.

United Kingdom

Individuals report via Self Assessment and must file and pay capital gains tax on residential disposals within 60 days. Companies file corporation tax returns, statutory accounts, and maintain a PSC register. Companies House reforms add identity verification requirements, so build this into your onboarding. If you are forming a property SPV, this plain-English guide to Companies House filings helps you avoid common mistakes.

Risk, governance, and the paperwork that protects you

Guarantees: Personal guarantees narrow ring-fencing. Maintain corporate formalities, separate accounts, and robust insurance to reduce leakage. See practical terms and pitfalls for personal guarantees.
Transfer friction: Moving assets into companies can trigger taxes and due-on-sale clauses. Lenders must consent. Always model costs and timing before you move title.
Loss usability: In the US, passive loss and basis rules can trap deductions. In the UK, property losses generally carry forward only against future property profits. Plan the timing of repairs and capex against your income mix.
Interest limits: UK CIR rarely hits small portfolios. In the US, you can avoid the section 163(j) limit by electing real property trade or business status, but that requires ADS depreciation and gives up bonus on affected property. Weigh interest relief against longer lives.
Exit tax layering: UK company asset sales plus extraction tax often cost more than personal sales. Buyers discount shares for latent tax and diligence. Decide on asset sale versus share sale early.
Anti-avoidance: UK targeted anti-avoidance rules can recharacterize liquidation proceeds as income if arrangements continue. Do not plan to reset basis through a loop.

Comparisons and quick picks that fit common profiles

US single-member LLC: Clean for one owner. Pass-through tax, 1031 flexibility, and liability segregation subject to guarantees.
US partnership LLC: Standard for multiple owners. Flexible allocations, basis from shared debt, and preferred return mechanics match property economics.
US S corporation: Fit for active property management service income, not for long-term rentals.
US C corporation: Rare for small landlords. Consider only with minimal distributions and a credible deferral and exit strategy.
UK Ltd company: Good for leveraged higher-rate taxpayers who can reinvest profits. Less helpful when leverage is low or you need regular dividends.
UK LLP: Useful to pool ownership with transparency, but it does not fix the Section 24 restriction for individuals.

Implementation plan that keeps lenders and tax rules aligned

Week 0-1: Model with tax counsel. Pick entity and tax status.
Week 1-3: Form the entity. Adopt governing documents. Open accounts. File BOI in the US or PSC information in the UK.
Week 3-8: Secure lender approvals. Update insurance. Align management agreements to the new titleholder.
Closing or transfer: Execute security documents. Record at the county or HM Land Registry. Update leases and payment instructions. For title details, see this guide to an HM Land Registry title.

Economics and fee stack that can erode your tax win

Formation and compliance: Expect entity fees, registered agent or company secretary costs, BOI or PSC filings, and accounting fees. These are small but persistent.
Financing terms: UK limited company buy-to-let rates and fees can be higher than personal rates. In the US, entity loans may price like commercial debt with higher closing costs. Guarantees are common in both markets.
Tax leakage points: UK dividends on extraction, US NIIT on net rental income, loss trapping in C corporations, transfer taxes and reassessments on retitling, and UK CGT and SDLT on incorporations all chip away at returns.

Decision snapshot: a 4-question filter before you form

Ask these four yes-no questions to narrow your choice fast. If you answer yes to most, the company path deserves a closer look. If you answer no to most, personal or pass-through ownership likely wins.

Are you highly leveraged? If yes and you are UK higher-rate, company interest deductibility matters.
Can you retain profits? If yes, company-level deferral compounds reinvestment without dividend tax.
Do you expect a share sale exit? If yes, a company can avoid a second layer at extraction, but only if buyers accept shares.
Do you need 1031 flexibility? If yes in the US, favor pass-throughs and avoid C corporations.

Kill tests you should run before you sign

US rule of thumb: If you plan to hold long and distribute cash, avoid structures that add a second tax layer. Default to pass-through unless a modeled deferral plan clearly wins after tax.
UK rule of thumb: If you are higher- or additional-rate with meaningful leverage and can reinvest most profits, a company usually wins over time. If you are basic-rate with low leverage and spend the income, personal ownership tends to be better.
Lender realism: If a lender requires a personal guarantee, do not overvalue entity protection. Buy enough insurance and maintain formalities.
Transfer costs: If you plan to incorporate existing property, run the full CGT, SDLT, transfer-tax, and lending consent model first.

Closing Thoughts

In the United States, most small landlords do best with personal title or an LLC taxed as a disregarded entity or partnership. Depreciation, QBI while it lasts, and NIIT planning keep effective rates low on cash profit. In the United Kingdom, leveraged higher-rate owners often favor a company, especially if profits can be retained for reinvestment. Everywhere, the right structure depends on leverage, your personal tax rate, how much cash you need to extract, and your likely exit route. Keep the structure simple, model before you move, and document like a lender will read it later.

Related reading on valuation and deal mechanics: an overview of the cost approach in real estate valuation, a clear explainer on sale and purchase agreements, and a guide to depreciation recapture.