Why 80% of New HMO Purchases Are Through Limited Companies in 2026

Section 24: The Tax Change Most Landlords Still Haven't Fully Priced In

Section 24 of the Finance Act 2015 — phased in from 2017 and fully live since April 2020 — removed the right for individual landlords to deduct mortgage interest from rental income before calculating tax. What replaced it? A 20% tax credit. That sounds almost reasonable until you're a higher-rate taxpayer.

Here's the mechanism. Say your 5-bed HMO generates £36,000 gross rent. Your mortgage interest is £14,400 a year. Under the old rules, you'd pay income tax on £21,600. Under Section 24, you pay income tax on the full £36,000, then claim a 20% credit on the £14,400 interest — so £2,880 off your bill.

If you're a 40% taxpayer, the old system cost you £8,640 in tax on that rental profit. The new system costs you £11,760 — after the credit. That's a £3,120 annual difference on a single property. Scale that across two HMOs with similar numbers and you're past £6,000. This is where the £6,400 figure comes from when you model it across a realistic 5-bed HMO with a modest mortgage.

And if Section 24 pushes your total income into the 45% additional-rate band? The damage compounds further. I've seen landlords who looked profitable on paper running negative cash flow once HMRC took its share.

The Limited Company Maths: Why Corporation Tax Wins at Scale

A Special Purpose Vehicle (SPV) limited company — typically set up with SIC code 68100 or 68209 for property investment — sits outside Section 24 entirely. Mortgage interest is a business expense, fully deductible from rental income before corporation tax is calculated. That's not a loophole; it's standard business accounting.

Corporation tax currently sits at 19% for profits under £50,000 and 25% for profits above £250,000, with marginal relief in between. Compare that to a higher-rate individual paying 40% on the same income, or 45% once earnings cross £125,140. The structural advantage is significant.

Back to the 5-bed HMO. In the limited company, you pay corporation tax on the £21,600 net profit (after deducting the £14,400 mortgage interest). At 19%, that's £4,104. The individual landlord, post-Section 24, pays £11,760. The gap is £7,656 before you account for the individual's personal allowance interaction — and yes, the specific number shifts with exact figures, but the direction of travel is unambiguous.

Quartico's 2026 guide to buy-to-let structures reports that 80% of new BTL purchases are now going through limited companies. That statistic didn't come from nowhere. It reflects thousands of accountants and mortgage brokers doing exactly this calculation and arriving at the same answer.

The trade-off is real, though, and I won't pretend otherwise. Extracting profit from the company — as salary or dividends — triggers personal tax again. If you need the income now, the efficiency gap narrows. The limited company structure works best when you're reinvesting profits, building a portfolio, and deferring personal drawings. If you need to live off your rental income today, the maths look different and you should model both scenarios with a qualified accountant before committing.

Lender Appetite in 2026: Better Than It's Been in Years

One objection I hear constantly: "Limited company mortgages are more expensive and harder to get." That was more true in 2019 than it is now.

The specialist HMO lending market has expanded materially. Lenders like Shawbrook, Paragon, Kent Reliance, Aldermore, The Mortgage Works, and Vida Homeloans all actively lend to SPV limited companies on HMO properties. HMO Mortgage Broker has publicly noted that lender appetite for HMO investors is the best it's been in several years, with over 30 specialist lenders active on panel.

Yes, limited company mortgage rates carry a small premium over personal-name rates — typically 0.2% to 0.5% depending on the lender and LTV. But when you run that premium against the annual tax saving, the premium is absorbed within months for most higher-rate taxpayers. The break-even is not years away; it's often a single tax year.

The harder problem isn't rate — it's structuring. Which lender will accept your SPV? What's the right LTV given your business plan? Does the lender want personal guarantees, and on what terms? These are questions where a generalist mortgage broker will waste your time. You need someone who works in this specific space daily.

Our regulated mortgage partners at [ZARSK](https://www.zarsk.co.uk/finance-property) work with specialist HMO lenders across the market. If you're trying to structure a new purchase through a limited company, or free up equity from an existing portfolio — which is genuinely one of the harder problems in property finance right now — that's exactly what they do.

The Equity Release Problem Nobody Talks About Enough

Here's a scenario that comes up more than most investors expect: you've built a portfolio over several years, values have risen, and you want to recycle that equity into your next deal. Straightforward in theory. Genuinely difficult in practice.

Refinancing an HMO — especially one held in a limited company, or one you want to transfer from personal name to a company — involves lenders stress-testing rental income, assessing the HMO licence status, checking room counts against local authority rules, and often requiring a full professional valuation. Some lenders won't touch certain HMO configurations at all. Others will, but only up to 65% LTV.

And if you're trying to transfer a personally held HMO into a limited company? That's a sale for Stamp Duty Land Tax purposes. SDLT at the additional-property surcharge rate — currently 5% on top of standard rates following the October 2024 Budget increase — applies. The incorporation relief rules are narrow and require specific conditions to be met. This is not a DIY exercise. I'd strongly recommend taking proper tax and legal advice before attempting any transfer.

The point is: the equity in your existing portfolio is not automatically accessible. Getting at it requires the right lender, the right structure, and often a specialist broker who knows which lenders will do what. That's where experienced help pays for itself many times over.

Finding the Right HMO to Buy in the First Place

None of this structuring work matters if you can't find the right property. And finding HMOs — specifically, properties already operating as HMOs, or those with strong HMO conversion potential — is harder than finding standard buy-to-lets.

HMOs don't always appear on Rightmove with a label. Sellers don't always advertise the licensing status. Yield calculations require room-by-room analysis, not just a headline price-to-rent ratio. And the geographic spread of viable HMO markets is wider than most investors realise — university towns, commuter belts, NHS trust catchments, large employer clusters.

This is the specific problem [ZARSK](https://zarsk.co.uk) was built to solve. The platform aggregates what I believe is the largest HMO-specific database in the UK — constantly updated, searchable by location, yield profile, and property type. If you're actively looking for HMO investments and you're not using a dedicated HMO database, you're searching with one hand tied behind your back.

Structure your entity correctly. Get the finance right. Then find the property with the right tools. That's the sequence that works.

The 80% figure isn't a trend — it's a verdict. Thousands of investors and their advisers have run the Section 24 numbers and reached the same conclusion independently. The limited company structure wins on tax efficiency for higher-rate taxpayers building a portfolio, full stop. The trade-off is extraction complexity and slightly higher mortgage rates, and for most serious investors those costs are worth paying.

What concerns me more than the structure question is the number of landlords still sitting in personal ownership, paying the Section 24 penalty every year, because restructuring feels complicated. It is complicated. But the cost of inaction is £6,400 a year — or more. That's not a reason to procrastinate; it's a reason to make one phone call to the right people this week.