Corporation tax is the tax that limited companies pay on their profits in the UK. If you hold property investments through a company structure, corporation tax applies to both your rental income and any gains made when you sell.
HMRC calculates corporation tax on a company’s taxable profits, which covers trading income, investment income, and chargeable gains. For property investors using a limited company, that means rental profits and proceeds from property sales both fall within scope.
Corporation Tax Rates
As of April 2023, the flat 19% rate was replaced with a tiered system based on profit levels.
| Profit Level | Rate | Notes |
|---|---|---|
| Under £50,000 | 19% | Small profits rate |
| £50,000 to £250,000 | 19-25% | Marginal relief applies |
| Over £250,000 | 25% | Main rate |
Companies must file a corporation tax return within 12 months of their accounting period ending and pay any tax owed within nine months and one day of that date.
How Corporation Tax Affects Property Investment Returns
The move to a tiered rate has changed the numbers for many investors. Before structuring a portfolio through a limited company, you need to model the 25% rate against projected profits and weigh that against the benefits of company ownership, such as the ability to deduct mortgage interest in full, which individual landlords can no longer do.
For higher-rate taxpayers, the maths can still favour a company structure. Retained profits within a company are taxed at the corporation tax rate rather than income tax, which gives some investors a more efficient way to reinvest and grow their portfolio.
Corporation Tax on Property Sales
When a company sells a property, the gain is subject to corporation tax rather than Capital Gains Tax. Companies also do not benefit from the annual CGT exempt amount that individual investors receive, so the tax position on disposal needs careful planning.
What Investors Often Overlook: Dividend Extraction
Even where corporation tax rates work in your favour during the accumulation phase, drawing money out of the company as dividends creates a second layer of tax. The effective combined rate, corporation tax on profits and then income tax on dividends, needs to factor into your overall return calculations before you commit to a company structure.
