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Published: April 2026 | by Admin
Many UK property investors are paying more than what they should. This is not because of poor deals but because of how they structure their investments.
Section 24 has changed how mortgage interest relief works significantly, making it more crucial to understand whether to invest as an individual or through a special purpose vehicle (SPV).
Section 24 has bumped up the tax bill of many landlords by 50%. The tax increase has moved many out of the market, but many landlords have also adapted to it with the help of SPV.
Mortgage interest relief allows landlords to reduce their taxable income by accounting for the interest paid on property loans.
Before Section 24, individual landlords could deduct 100% of their mortgage interest from rental income, meaning they were taxed only on their actual profit. Today, this benefit has been restricted for individuals, changing the way tax is calculated and often increasing the overall tax burden.
If you own property in your personal name, you can no longer deduct your mortgage interest from rental income. Instead, you receive a 20% tax credit on the interest paid.
This means tax is calculated on your total rental income rather than your net profit. For example, if your rental income is £15,000 and your mortgage interest is £10,000, your actual profit is £5,000. However, you are taxed on £15,000 and then receive only partial relief through the tax credit.
This approach often results in a higher effective tax rate and can significantly reduce your real cash flow. In many cases, investors are pushed into higher tax brackets, even though their actual earnings do not justify it.
An SPV, or special purpose vehicle, is a limited company created specifically for property investment. Unlike individual ownership, an SPV allows mortgage interest to be treated as a fully deductible business expense.
This means tax is applied only to actual profit rather than total income. Using the same example, a rental income of £15,000 and mortgage interest of £10,000 would result in a taxable profit of £5,000. This creates a much more accurate and fair taxation structure, particularly for investors who rely on financing.
In addition, profits within an SPV are subject to corporation tax rates, which are generally lower than higher-rate personal income tax, making it a more efficient structure for long-term portfolio growth.
The key difference between the two structures lies in how tax is calculated and how profits are treated. Individual landlords are taxed on gross income with limited relief, while SPVs are taxed on net profit after deducting expenses. This difference becomes increasingly important as the size of the portfolio and level of borrowing increases.
While SPVs offer greater tax efficiency, they also come with added complexity, including company setup, ongoing compliance, and slightly higher borrowing costs. On the other hand, individual ownership remains simpler and provides direct access to rental income without additional layers of taxation when withdrawing profits.
The decision between an SPV and individual ownership is not purely about tax savings. It is fundamentally about investment strategy and long-term goals.
An SPV is often better suited for investors who want to reinvest profits and scale their portfolio over time, as it allows capital to grow more efficiently within the company. In contrast, individual ownership is more suitable for those who prioritise immediate income and prefer a simpler structure.
Understanding this distinction is critical, as choosing the wrong structure can limit your ability to grow or reduce your overall returns.
Before making a decision, it is essential to consider the broader financial implications. Transferring properties from personal ownership to a company structure can trigger Capital Gains Tax and Stamp Duty, which can be costly. Mortgage options for SPVs may come with slightly higher interest rates, and running a company involves ongoing administrative and accounting responsibilities.
Additionally, while an SPV can offer tax advantages on retained profits, extracting those profits through dividends or salary may result in further taxation, which needs to be carefully planned.
There is no one-size-fits-all answer when it comes to choosing between an SPV and individual ownership. However, in today’s tax environment, SPVs are increasingly becoming the preferred option for investors who are serious about building and scaling a property portfolio.
If your focus is on long-term growth and reinvestment, an SPV structure can offer significant advantages. If your priority is simplicity and immediate access to rental income, individual ownership may still be appropriate.
Ultimately, the right choice depends on your income level, financial goals, and investment strategy.
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