In recent years, an increasing number of landlords in the UK have been asking the same question: Should I operate my property rental business through a limited company? It’s a valid consideration—especially with recent changes to how rental income is taxed. As accountants who specialise in working with landlords, we have helped many property investors understand the implications of setting up a limited company.
If you’re a landlord wondering whether incorporation is right for you, this blog will walk you through the key advantages, disadvantages, and tax implications of setting up a limited company for your property portfolio.
Why are landlords considering limited companies?
The biggest driver behind the shift toward limited companies is tax efficiency. Since the restriction of mortgage interest relief for individual landlords (introduced in phases from 2017 to 2020), many have found themselves paying higher tax bills than before—even if their rental profits haven’t increased. In contrast, limited companies are still allowed to deduct mortgage interest and finance costs in full, making them a more tax-efficient option in some scenarios.
Let’s explore both sides of the coin.
Advantages of operating through a limited company
1. Tax efficiency
One of the most appealing reasons to incorporate is the lower corporation tax rate compared to higher and additional personal income tax bands. If you’re a higher-rate taxpayer earning rental income personally, you could pay up to 45% in income tax. In contrast, corporation tax is currently capped at 25% (or potentially lower depending on profit levels).
This can result in significant tax savings if the profits are retained in the company or reinvested into expanding the portfolio.
2. Full mortgage interest deductions
Private landlords can no longer deduct all their mortgage interest when calculating taxable rental income. Instead, they receive a basic rate credit. Limited companies, however, can fully deduct mortgage interest before calculating profits. This can have a major impact on the final tax bill.
3. Inheritance tax planning
A limited company structure can give landlords increased control and versatility in planning how their estate is passed on. Shares in a company can be more easily transferred or structured with different classes, allowing for smoother succession. This can help in reducing inheritance tax liabilities when structured properly.
4. Limited liability protection
Operating through a company structure provides protection of personal assets. If something goes wrong—say, a tenant sues or the company accrues debts—your personal assets are typically not at risk (as long as you haven’t given personal guarantees).
5. Flexibility in profit extraction
Limited companies allow landlords to extract profits in different ways—salary, dividends, or directors’ loans—offering flexibility to minimise personal tax depending on your circumstances.
Disadvantages of operating through a limited company
1. Higher set-up and running costs
Setting up a limited company involves initial and ongoing costs, including company formation, accountancy fees, annual accounts, Corporation Tax returns, and compliance with Companies House regulations. This can add up, particularly for landlords with small portfolios.
2. Tax on dividends
Once profits are extracted from the company (as dividends), they’re subject to dividend tax, which varies based on your income level. While corporation tax may be lower, the combined effect of corporation tax plus dividend tax can, in some cases, equal or exceed personal income tax rates—so careful planning is essential.
3. Stamp Duty Land Tax (SDLT) on transfers
Even if no money is involved, transferring a property to a limited company is still viewed as a sale and attracts SDLT based on its total market value. This can be particularly expensive if you’re moving multiple or high-value properties.
4. Capital Gains Tax (CGT) on transfers
Similarly, moving property into a company is treated as a disposal for CGT purposes. This means that if the property has increased in value since you bought it, you may face a CGT bill—even though you’re effectively transferring it to your own company.
5. Complexity in ownership transfer
Transferring properties into a limited company is a complex legal and financial process, especially if the properties are mortgaged. The lender must approve the transfer, and you may need to refinance in the company’s name—often at higher interest rates or with fewer lenders to choose from.
Incorporating an existing property business: Key considerations
For landlords who already own properties personally, transitioning to a limited company structure requires careful consideration. Below are the major tax implications involved in transferring property to a company.
Stamp Duty Land Tax (SDLT)
Transferring properties into a limited company is a complex legal and financial process, especially if the properties are mortgaged. The lender must approve the transfer, and you may need to refinance in the company’s name—often at higher interest rates or with fewer lenders to choose from.
Capital Gains Tax (CGT)
Similarly, Capital Gains Tax may apply when transferring a property to a company. This is because HMRC treats the transfer as a sale. You determine the gain by calculating how much the property’s value has risen from the time of purchase to the point of transfer.
If your properties have appreciated significantly, this could result in a large CGT bill, potentially making incorporation financially unviable.
Incorporation Relief
There is some good news. Incorporation Relief may be available to defer CGT if the property business qualifies as a genuine business (usually applicable for landlords with significant levels of activity, such as managing multiple properties).
Under this relief, you transfer your property portfolio to the company in exchange for shares, deferring the gain until you sell those shares in the future. However, this only defers the tax—it doesn’t cancel it. Plus, not all landlords qualify, so professional advice is crucial here.
Disclaiming Incorporation Relief
In cases where there’s no capital gain—or where a loss is made—you may choose to disclaim incorporation relief, allowing you to immediately recognise any capital loss for tax purposes.
This is a strategic move in limited circumstances; therefore, we recommend consulting with an accountant before taking this route.
So, should you incorporate?
No single approach works for everyone. Whether you should incorporate will be influenced by factors including:
- Your current income tax band
- Number of properties you own
- Mortgage interest costs
- Long-term property investment goals
- Succession and estate planning intentions
For some landlords, particularly those with growing portfolios or higher tax rates, incorporation could lead to significant tax savings and added protection. For others—especially those with only one or two properties—the costs and complexity might outweigh the benefits.
Final thoughts
Incorporation is a big decision—and it’s not easily reversed. That’s why we always recommend speaking to a qualified accountant with experience in property taxation before making a move.
At 3E’S, we specialise in helping landlords make informed decisions around property tax, business structure, and long-term strategy. Whether you’re just starting out or already have a sizeable portfolio, we can help you assess your current situation and decide if incorporation makes financial and operational sense for you. Contact us today to see how we can help you structure your property business for success.
