Via MBK from The Times:
According to calculations by David Hollingworth of the broker L&C Mortgages, buying a house with £12,000 income and £6,000 interest each year through a limited company would earn a higher-rate taxpayer an additional £2,400 profit, even taking into account corporation tax.
That's not comparing like with like.
If our higher rate taxpayer collects the rent and pays the interest, he pays 40% on the income (£4,800) and will (once the changes have been phased in) get 20% relief for the mortgage interest (£1,200), total tax bill £3,600.
If the same home were owned by a company, it pays flat 20% corporation tax on net profit £6,000 = £1,200.
So far, that looks like a £2,400 tax saving. But it isn't the full picture, money rolled up in a company is no good to the landlord/shareholder. If he takes the after tax profits as a dividend, he is liable to 32.5% on the dividend (assuming his £5,000 dividend nil rate band is already used up) = another £1,560 income tax, to the total tax bill is £2,760.
That's still a saving, but only of £840 a year, and accountants will charge you more than that for running the company and submitting all the required returns.
I love the whining in the comments about it not being fair that landlords don't get full relief for the interest. The UK tax system has always treated interest differently to real business costs and there never was a blanket presumption that it is allowable against tax, it is only allowable where the statute expressly says so.