The short answer: buy to let in Scotland is taxed differently depending on whether you hold property in your own name or through a limited company. Personal ownership means rental profit is taxed as income and mortgage interest relief is restricted. Company ownership means profit is taxed as corporation tax with interest treated as a business cost, but taking money out is taxed again and the lending is more expensive.
The Additional Dwelling Supplement applies either way. In Scotland, buying an additional residential property attracts ADS on top of Land and Buildings Transaction Tax, charged on the full purchase price rather than only the amount above a threshold, and companies do not escape it.
I am Ingrid Cairns, a mortgage adviser in Strathaven, South Lanarkshire, working with landlords across Glasgow, Hamilton, East Kilbride, Inverness and the rest of Scotland. This guide explains how the two routes compare and what each means for your borrowing. Tax advice itself belongs with a qualified accountant, and I say so to every landlord I work with.
How buy to let is taxed in your own name
If you own a rental property personally, the rental profit is added to your other income and taxed at your marginal rate. For a higher rate taxpayer, that means a substantial share of the profit goes in tax.
The change that reshaped the market is the restriction on mortgage interest relief. Landlords can no longer deduct mortgage interest as a straightforward expense before calculating taxable profit. Instead, relief is given as a basic rate reduction against the tax bill.
The practical effect is that a heavily mortgaged property held personally can generate a tax bill that looks disproportionate to the actual cash it produces. For basic rate taxpayers the impact is limited. For higher and additional rate taxpayers it can be severe, and it is the single biggest reason landlords started looking at companies.
How buy to let is taxed through a limited company
A company holding rental property pays corporation tax on its profit, and mortgage interest is treated as an ordinary business expense deducted before that profit is calculated. That is the fundamental difference and it is what makes the structure attractive to higher rate taxpayers with borrowing.
The complication is getting the money out. Profit retained in the company has been taxed once. Extracting it as a dividend or salary is taxed again in your hands, so the overall position depends heavily on whether you intend to draw the income now or leave it in the company to buy more property.
This is the point where the arithmetic becomes personal rather than general. A landlord building a portfolio who reinvests everything is in a very different position from someone who needs the rental income to live on, and the same structure can be clearly right for one and clearly wrong for the other.
The Additional Dwelling Supplement applies either way
This is the cost that most commonly derails a first buy to let purchase in Scotland, and it is worth being blunt about it.
ADS is charged on the purchase of an additional residential property, on top of LBTT. Unlike LBTT, which applies in bands above a threshold, ADS is calculated on the full purchase price. It is payable at completion rather than spread across the term.
Companies do not avoid it. A limited company buying residential property is generally liable for ADS on essentially every purchase, since it has no main residence to claim.
The practical problem is one of sequencing. Landlords budget carefully for the deposit and the monthly payment, then encounter the transaction tax late in the process when adjusting is difficult. It should be in the model from the first conversation, not the last.
- Confirm the current ADS and LBTT rates with Revenue Scotland before you budget, as rates are set by the Scottish Government and change
- Budget for it as cash at completion, because it cannot be added to the mortgage
- Ask your solicitor about the rules if you are replacing a main residence, since repayment is possible in some circumstances
- Remember it applies to the full price, not just the portion above a threshold
What company ownership means for your mortgage
This is the part I can speak to directly, and it is frequently underweighted when landlords make the decision on tax grounds alone.
Company buy to let lending is a smaller market than personal buy to let. There are fewer lenders, rates are generally higher, and arrangement fees are often larger and expressed as a percentage of the loan rather than a flat sum. Over a five year period those differences add up to a real number that belongs in the comparison.
Most lenders in this space want a special purpose vehicle, which is a company set up specifically to hold property rather than a trading business with other activities. If you already have a trading company, the options narrow considerably.
You should also expect to give a personal guarantee. The company borrows, but you stand behind it, so the limited liability is more limited than people sometimes assume.
None of this is a reason to avoid the structure. It is a reason to compare total cost rather than headline tax treatment.
Can I move properties I already own into a company?
You can, but it is rarely as simple as it sounds and it is not a paper exercise.
Transferring a property you own personally into a company is treated as a sale and purchase. That generally means the company pays LBTT and ADS on the transaction, and you may face a capital gains tax charge on any increase in value since you bought it. You would also need to redeem the existing mortgage and arrange new company borrowing, with the fees that involves.
For landlords with substantial gains, those costs frequently exceed the tax saving for many years. There are reliefs that may apply in particular circumstances, especially for larger portfolios run as a genuine business, but they are specific and they need proper advice.
The general position is that incorporating existing properties is an expensive decision that occasionally makes sense, while buying new properties through a company is a much more straightforward one.
So which is better?
There is no general answer, and anyone giving you one without asking about your circumstances is guessing.
A company structure tends to suit landlords who pay higher rate tax, who borrow to buy, who intend to keep expanding, and who do not need to draw the rental income immediately.
Personal ownership tends to suit landlords who pay basic rate tax, who own with little or no borrowing, who have one or two properties rather than a growing portfolio, or who need the income now.
Between those two positions sits a large middle ground where it genuinely depends on the numbers. That is a conversation for your accountant on the tax and for a broker on the lending, and the two need to happen together rather than in sequence.
The costs landlords forget
Whichever route you take, the figures that determine whether a rental property works are rarely just deposit, rent and mortgage.
- ADS and LBTT, payable in cash at completion
- Legal fees, which are higher for a company purchase
- Lender arrangement fees, often a percentage of the loan on company products
- Landlord registration and compliance obligations in Scotland
- Letting agent fees if you are not managing it yourself
- Void periods between tenancies, which are the cost most often left out of the model entirely
- Repairs and replacement of major items, which arrive on their own schedule
- Accountancy fees, which are higher for a company than for personal self assessment
Frequently asked questions
Do you pay stamp duty on a limited company buy to let in Scotland?
Scotland has Land and Buildings Transaction Tax rather than stamp duty. A limited company buying residential property pays LBTT and is also generally liable for the Additional Dwelling Supplement, which is charged on the full purchase price rather than only the amount above a threshold. Confirm current rates with Revenue Scotland.
Is it better to buy a buy to let in a limited company or personal name in Scotland?
It depends on your tax position and intentions. A limited company tends to suit higher rate taxpayers who borrow to buy and intend to reinvest rather than draw the income, because mortgage interest is deductible before corporation tax. Personal ownership tends to suit basic rate taxpayers, those with little borrowing, and those who need the rental income now.
Does a limited company pay the Additional Dwelling Supplement in Scotland?
Yes. A limited company buying residential property in Scotland is generally liable for ADS on its purchases, because it has no main residence to claim. Using a company does not avoid the charge.
Can I transfer my buy to let into a limited company?
You can, but the transfer is treated as a sale and purchase. The company would generally pay LBTT and ADS, and you may face a capital gains tax charge on any increase in value. You would also need to redeem the existing mortgage and arrange company borrowing. For many landlords those costs outweigh the saving for a long period.
Are limited company buy to let mortgages more expensive?
Generally yes. There are fewer lenders in the company buy to let market, rates are typically higher than equivalent personal buy to let products, and arrangement fees are often charged as a percentage of the loan rather than a flat amount. These costs should be included when comparing the two routes.
What is an SPV for buy to let?
An SPV, or special purpose vehicle, is a limited company set up specifically to hold property rather than to trade in something else. Most lenders in the company buy to let market prefer or require an SPV, and options narrow considerably for landlords buying through an existing trading company.
Do I need a personal guarantee for a limited company buy to let mortgage?
In most cases yes. Lenders typically require directors to give a personal guarantee, which means you stand behind the company’s borrowing. The limited liability of the structure is therefore more limited in practice than landlords sometimes expect.
How is rental income taxed in Scotland?
Rental profit from a personally owned property is added to your other income and taxed at your marginal rate, with mortgage interest relief restricted to a basic rate reduction rather than a deductible expense. A company pays corporation tax on its profit with interest treated as a business cost, though extracting the money is then taxed again.
Get in touch
If you are weighing up a purchase, the useful sequence is to speak to an accountant about the tax position and a broker about what the borrowing actually costs under each structure, and to do both before you offer on anything.
I am happy to run the lending comparison with you so you are deciding against real figures rather than general rules.
Call me on 01357 680660 or get in touch via our enquiry form here.
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