A property company owner can take money out as salary, dividends, interest on money they have lent the company, or repayments of that loan. Repaying a loan you made to the company is not taxed at all, interest is deductible for the company and taxed on you as savings income, dividends come out of profits already taxed at 19% to 25%, and salary only works in small amounts because a letting company often cannot use the Employment Allowance and must justify the pay.

Why is extraction different in a property company?

The general salary and dividend comparison for trading companies is covered in salary vs dividends. Property companies have four features that change the answer. They usually have one or two shareholder directors and no staff, so payroll reliefs are limited. Much of their balance sheet value comes from revaluations, which cannot be paid out as dividends. Owners often lent the company money, or credited a loan account when properties were transferred in, so there is a loan to draw down. And because letting is an investment activity, there is usually no Business Asset Disposal Relief at the end, so the exit route is less forgiving than for a trading company.

Can a property company pay its director a salary?

Yes, but two rules limit it. First, the salary must be deductible. A property business applies the trading rule that expenses must be incurred wholly and exclusively for the business (PIM2010), and HMRC uses arm’s length comparators to test remuneration. The case usually cited is Earlspring Properties Ltd v Guest, a property investment company where pay to the shareholder’s wife, who did only clerical work, was held to be partly excessive and the excess disallowed (BIM37740). Salary should reflect the work the director actually does on the lettings.

Second, the National Insurance numbers. For 2026 to 2027 employer contributions are 15% above the secondary threshold of £5,000 a year, and employee contributions start at the primary threshold of £12,570. The Employment Allowance of up to £10,500 cannot be claimed if the company has only one director and that director is the only employee liable for secondary Class 1 contributions, which describes many property companies. A salary of £5,000 a year therefore costs no National Insurance and is deductible, while a salary up to £12,570 costs employer contributions on the slice above £5,000 unless the Employment Allowance is available. See directors’ National Insurance for how the annual earnings period works.

How are dividends from a property company taxed?

For 2026 to 2027, dividends above the £500 dividend allowance are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% in the additional rate band. Dividends are paid out of profits that have already borne Corporation Tax, so the combined rate is higher than either figure suggests.

The constraint particular to property companies is distributable reserves. Under section 830 of the Companies Act 2006 a company may only make a distribution out of accumulated realised profits less accumulated realised losses. Investment property is often carried at fair value with gains taken through profit and loss, and ICAEW guidance is that those fair value gains are not realised profits and are not available for distribution. A company whose reserves are mostly revaluation gains may have little it can lawfully pay out, however valuable the portfolio. See investment property accounting and how to pay dividends legally.

Is repaying a director’s loan really tax free?

Where you have lent the company money, the company owes you a debt. HMRC’s guidance on director’s loans says the company does not pay Corporation Tax on money you lend it, and only interest charged on the loan is personal income for you; the repayment of the money you lent is simply the company paying back what it owes. Drawing down a credit balance on your director’s loan account is therefore usually the cheapest route while the balance lasts.

The balance often comes from incorporation. If properties were transferred into the company partly in exchange for a loan account credit rather than shares, that credit can be drawn later without tax. The price is paid up front: under section 162 of the Taxation of Chargeable Gains Act 1992, the proportion of the gain matching non share consideration is taxed in the year of transfer (CG65740). This trade off is explained in incorporating a property portfolio.

The reverse is not tax free. If the director draws more than the company owes them, the loan account becomes overdrawn and a close company faces a section 455 charge on loans to participators, at a rate aligned to the dividend upper rate.

Should the director charge interest on the loan?

Interest is deductible for the company and is taxed on the director as savings income, with no National Insurance. The company must deduct Income Tax at the basic rate of 20% when it pays the interest and report it quarterly on form CT61. The director may be able to use the Personal Savings Allowance (£1,000 for a basic rate taxpayer, £500 for a higher rate taxpayer) and, if their other taxable income is below £17,570, the starting rate for savings of up to £5,000. The rate charged should be commercial. Savings rates rise to 22%, 42% and 47% from 6 April 2027. The mechanics are covered in charging interest on a loan to your company.

How do the routes compare?

Illustration only. A director who is already a higher rate taxpayer takes out £10,000 of company profit in 2026 to 2027. The company pays Corporation Tax at 19%, the dividend allowance and Personal Savings Allowance are already used, the director has an existing loan account credit large enough for the loan options, and for the salary row their earnings are already above the upper earnings limit.

Route Tax on the £10,000 Director keeps
Dividend £1,900 Corporation Tax, then £2,896 at 35.75% on £8,100 £5,204
Interest on loan Deductible for the company; £4,000 at 40% for the director (£2,000 deducted at source) £6,000
Loan repayment £1,900 Corporation Tax, nothing on repayment of £8,100 £8,100
Salary above thresholds £1,304 employer NIC on £8,696, then £174 employee NIC at 2% and £3,478 Income Tax £5,044

The loan repayment comes out best but is limited to what the director has genuinely lent or credited. Interest needs a loan to exist and is capped by a commercial rate. Salary is efficient only up to the National Insurance thresholds. Dividends are usually the balancing figure once reserves allow.

What mistakes do property company owners make?

  • Paying dividends from revaluation gains and finding later that the dividends were unlawful.
  • Paying a family member a salary with no real duties, inviting a wholly and exclusively challenge.
  • Assuming the Employment Allowance is available to a one director company with no staff.
  • Paying interest gross and forgetting the CT61 return.
  • Drawing more than the loan account balance and creating a section 455 charge.
  • Planning on Business Asset Disposal Relief for the final exit, which needs a trading company.

The wider case for holding property in a company is in buy to let through a limited company.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.