Buy-to-let calculator: personal vs company

Held personally, your rental profit is taxed at your income tax rate, but since 2020 you can no longer deduct the mortgage interest as an expense. Instead you get a flat 20% tax credit on it (the "Section 24" rule). For a basic-rate landlord that roughly nets out; for a higher-rate landlord it does not, and the tax can be charged on profit the interest has already swallowed.

Held through a limited company, the interest is a normal deductible expense, so the company is taxed on the real profit at corporation tax. The catch is getting the money out: taking it as a dividend means dividend tax on top, so it is taxed twice. Left inside the company to buy the next property, it is taxed once. That is why incorporating tends to suit higher-rate landlords building a portfolio, and matters less for a single flat you want the income from now.

Run realistic numbers and the net rental income is often small, and sometimes negative once a big mortgage and higher-rate tax are in. Historically, most of the money made in buy-to-let has come from the property itself rising in value, amplified by the mortgage. That is a real way to build wealth, but it is a bet on the housing market continuing to rise, not a yield you are being paid. It also cuts both ways: leverage magnifies a fall as much as a gain. Being clear about which one you are relying on is the whole point.

The number above is one good year: twelve months of rent, no gaps, the rate you typed. The first thing worth doing with it is breaking it. Run it again on eleven months of rent to price a single void, then run it again with the mortgage rate two or three percentage points higher, which is what a remortgage can do to an interest-only buy-to-let. If the profit goes negative in either version, the property is being funded out of the rest of your income, and the question stops being about yield and becomes about how many months of that you could carry.

The structure fork turns on two things and neither is the profit figure. The first is your marginal income tax rate, because that is what decides whether the Section 24 credit covers your interest or leaves you taxed on money the lender has already taken. The second is what the money is for: cash you want in your hand each month is taxed once personally and twice through a company, while cash you intend to leave in place to buy the next property is taxed once either way. Answer those two and the fork usually answers itself.

Timing matters more than most people expect here. Moving a property you already own into a company is normally treated as a sale to that company, which can bring stamp duty and a capital gains charge on the way in, so the structure is far cheaper to choose before the purchase than to change afterwards. That makes it worth resolving now, with an accountant, rather than filing it as something to revisit.

Then there is everything the one-year view leaves out. Purchase costs and the additional-property stamp duty surcharge come out at the start, agent fees and maintenance come out every year, and capital gains tax comes out at the end. A single year of profit has to be large enough to service all three across however long you hold the property, and the comparison worth making is against the plainer things the same deposit could do, which is the ground covered in overpay your mortgage or invest.

The reason a single figure struggles here is that a rental runs on three different rhythms at once. The deposit and the purchase costs leave on one date. The rent and the mortgage move every month. The tax lands once a year, on profit that is not the same thing as the cash in the account. Reading them separately is how a landlord ends up profitable on paper and short in January. Seeing them together is exactly what a three-way model is for, and it is what CrestCast forecasts across a whole household, with the rental in it rather than beside it.