Incorporating a Property Business

Key facts

A company can fully deduct mortgage interest as a business expense (Section 24 does not apply to companies).
Corporation Tax is 19–25% vs up to 45% Income Tax for higher earners.
Transferring properties triggers SDLT on the market value (including the 5% surcharge).
Transferring properties also triggers CGT on any gain at the point of transfer.
Incorporation Relief (s.162 TCGA 1992) may defer CGT, but HMRC scrutinises property business claims closely.

Overview

Since the Section 24 mortgage interest restriction was introduced, many landlords have considered transferring their properties into a limited company. A company can still deduct mortgage interest in full, and Corporation Tax rates (19–25%) are lower than higher-rate Income Tax (40–45%).^[4]

However, incorporation is not always beneficial. The upfront tax costs of transferring existing properties can be significant, and extracting profits from a company adds complexity.

Advantages of a Company Structure

Full mortgage interest deduction: Section 24 does not apply to companies. Mortgage interest is deducted as a business expense before Corporation Tax.
Lower headline tax rate: Corporation Tax is 19–25% vs up to 45% Income Tax for high earners.^[1]
Retained profits: Profits left in the company are only taxed at the Corporation Tax rate. No additional personal tax until you extract them.
Flexibility on profit extraction: Choose when and how much to take as salary, dividends, or pension contributions.
No Personal Allowance taper: Company profits do not affect your personal tax thresholds.

Disadvantages and Costs

SDLT on transfer: Transferring properties to a connected company triggers SDLT on the market value, including the 5% surcharge.^[3]
CGT on transfer: The transfer is a disposal at market value. Any gain is subject to CGT at 18/24%.
Double taxation on extraction: When you take profits out as dividends, you pay personal tax on top of the Corporation Tax already paid.
Higher mortgage rates: Lenders often charge higher interest rates for company buy-to-let mortgages.
Annual filing and compliance costs: Company accounts, Corporation Tax returns, confirmation statements, and potentially annual audit fees.
No CGT Annual Exempt Amount: Companies do not receive the £3,000 annual exemption for capital gains.

The Cost of Transferring Existing Properties

SDLT

A transfer to your own company is treated as a purchase at market value. The 5% surcharge for additional dwellings applies because the company is a separate legal entity.^[3]

CGT

You are treated as disposing of the property at market value. CGT is calculated on the difference between the market value and your original cost (plus allowable costs and improvements).

Worked Example

Item	Amount
Property market value	£300,000
Original purchase price + costs	£180,000
CGT on gain (£120,000 − £3,000 AEA = £117,000 at 24%)	£28,080
SDLT on transfer (£300,000 at surcharge rates)	£19,500
Total upfront tax cost	£47,580

This £47,580 upfront cost must be recouped through future tax savings before incorporation becomes worthwhile.

Incorporation Relief (s.162): In some cases, Incorporation Relief may defer the CGT. However, HMRC often challenges whether a property letting business qualifies as a “business” for these purposes. The business must be more than a passive investment — active management, multiple properties, and significant landlord involvement strengthen the case.^[2]

Buying New Properties Through a Company

For landlords acquiring new properties, buying through a company avoids the SDLT and CGT costs of transferring existing properties. You still pay the 5% SDLT surcharge on company purchases, but you benefit from full mortgage interest deductibility from day one.

Tip: Many advisers recommend a hybrid approach: keep existing personally owned properties and purchase new ones through a company. This avoids the expensive transfer costs while benefiting from the company structure on new acquisitions.

Extracting Profits from a Company

Profits retained in a company are taxed at Corporation Tax rates. When you extract them, additional personal tax applies:

Method	Corporation Tax	Personal Tax	Combined Effective Rate
Dividend (basic rate)	19–25%	10.75%	~28–33%
Dividend (higher rate)	19–25%	35.75%	~48–52%
Salary	Deductible (no CT)	20–45% + NIC	Varies

The combined effective rate for higher-rate taxpayers extracting all profits as dividends can exceed what they would pay as a personal landlord. The benefit of incorporation often lies in deferring personal tax by retaining profits in the company.

Frequently Asked Questions

Should I put my buy-to-let properties into a limited company?

It depends on your circumstances. A company structure benefits higher-rate taxpayers with significant mortgage debt (because the company can deduct interest in full). However, transferring existing properties triggers SDLT and CGT, which can be very expensive. New purchases through a company may be more cost-effective. Always take professional advice.

Do I pay SDLT when transferring property to my own company?

Yes. A transfer to a connected company is treated as a market value transaction. SDLT is calculated on the property’s market value (not what you originally paid), and the 5% surcharge for additional dwellings applies. This can make incorporation prohibitively expensive.

What is Incorporation Relief for property businesses?

Incorporation Relief under Section 162 TCGA 1992 can defer CGT when a business is transferred to a company in exchange for shares. However, HMRC often argues that a property rental business does not qualify because it is an investment, not a trade. Professional advice is essential.

How is rental income taxed in a company?

A company pays Corporation Tax on its rental profits (19% on profits up to £50,000, rising to 25% on profits over £250,000, with marginal relief between). Mortgage interest is fully deductible. However, extracting profits from the company (via salary or dividends) incurs additional personal tax.

Sources

Corporation Tax rates — GOV.UK
TCGA 1992 – Section 162: Incorporation Relief — legislation.gov.uk
Stamp Duty Land Tax: transfer to a connected company — GOV.UK
Tax relief for residential landlords — GOV.UK