Part of our complete guide to landlord tax.
The tax case for incorporating
Since mortgage interest relief for individual landlords was restricted under Section 24, replaced with a basic-rate tax credit instead of a full deduction, geared portfolios with significant borrowing have seen their effective tax rate climb, in some cases well above their actual income tax band. A limited company doesn't face this restriction, it deducts mortgage interest in full as a cost before calculating Corporation Tax, which is why incorporation has become a live question for highly leveraged landlords in particular.
The transfer cost that catches people out
Here's the problem: moving an existing property into a company you own isn't a tax-free reorganisation, HMRC treats it as a disposal at market value. That typically means Capital Gains Tax on any increase in value since you bought it, and Stamp Duty Land Tax on the transfer, calculated as if the company were buying the property from you at full market value. For a portfolio that's appreciated significantly, these upfront costs can be very large, sometimes large enough to wipe out years of the ongoing tax saving.
Key point: Incorporation is a trade-off between an upfront tax cost now and an ongoing tax saving later. The breakeven point depends heavily on how much gearing you have, how much the properties have appreciated, and how long you plan to hold them, there's no universal answer.
Where it tends to make more sense
- Highly geared portfolios, where the Section 24 restriction is biting hardest and the ongoing saving is largest
- Properties bought recently, with less accrued capital gain, meaning a lower CGT cost to transfer
- A long investment horizon, giving more years for the ongoing saving to outweigh the one-off transfer cost
- New purchases going forward, buying future properties directly into a company from the start avoids the transfer cost question entirely
Where it tends not to
Lightly geared or mortgage-free portfolios get little benefit from the Section 24 fix, since there's limited interest to deduct either way, while still facing the full transfer cost. Properties with large accrued gains also face a bigger CGT bill on transfer, which can take many years of ongoing saving to recover.
Considering incorporating your portfolio? Book a free consultation and we'll model the breakeven point for your specific properties and gearing level before you commit, as part of our company formation service.
Frequently asked questions
Why would a landlord incorporate a property portfolio?
A limited company can deduct mortgage interest in full against rental profit before Corporation Tax, unlike individual landlords who only get a basic-rate tax credit under Section 24, which can produce a meaningfully lower tax bill for geared portfolios.
What does it cost to transfer properties into a company?
Transferring property you own personally into a company usually triggers both Capital Gains Tax on the uplift in value and Stamp Duty Land Tax on the transfer, since it's treated as a sale at market value even though you own the company.
Is there a way to avoid CGT and SDLT on incorporation?
Partnership incorporation relief can sometimes reduce or defer these charges if the properties were held through a genuine property partnership before incorporation, but this requires the right structure to already be in place and specific advice.
Does a company mortgage cost more?
Usually yes, limited company buy-to-let mortgage rates and fees tend to run higher than personal buy-to-let rates, which eats into the tax saving and needs factoring into the overall comparison.