Should You Incorporate Your Property Portfolio?
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# Should You Incorporate Your Property Portfolio?
Since Section 24 phased out full mortgage interest relief for individual landlords between 2017 and 2020, incorporation has become one of the most-asked tax planning questions in UK property. This guide walks through when it makes sense, when it doesn't, and the real numbers behind the decision.
The Section 24 problem
Before 2017, landlords could deduct mortgage interest from rental income before calculating tax. From April 2020 onwards, individuals can only claim a 20% tax credit on mortgage interest.
For a higher-rate taxpayer with a leveraged portfolio, this is brutal. A worked example:
| Item | Pre-2017 | Post-2020 (individual) | Post-2020 (Ltd Co) |
|---|---|---|---|
| Rent | £30,000 | £30,000 | £30,000 |
| Mortgage interest | £20,000 | £20,000 | £20,000 |
| Other costs | £4,000 | £4,000 | £4,000 |
| Taxable profit | £6,000 | £26,000 | £6,000 |
| Tax (40% / 25%) | £2,400 | £10,400 | £1,500 |
| Less 20% interest credit | — | (£4,000) | — |
| Net tax | £2,400 | £6,400 | £1,500 |
The individual pays nearly 4x more tax for the same economic profit.
When incorporation makes sense
Generally, you should look seriously at incorporation if:
- You have 5+ rental properties
- You are a higher or additional rate taxpayer
- Your portfolio is leveraged (mortgages > 50% LTV)
- You plan to reinvest profits rather than draw them as income
- You can qualify for s.162 Incorporation Relief
When it doesn't
Think twice if:
- You have 1-4 properties (running costs eat the benefit)
- You are a basic-rate taxpayer (Section 24 barely affects you)
- The portfolio is unleveraged (no interest = no Section 24 issue)
- You need the rental income to live on (extraction tax double-bites)
- You are close to retirement (gains may be more efficient in personal hands)
The transfer tax problem
Moving properties from personal name into a company is treated as a disposal at market value. This triggers:
Capital Gains Tax
Unless Section 162 Incorporation Relief applies, CGT is payable on the uplift from purchase price to current market value at 18% or 24% (2026 residential rates).
Stamp Duty Land Tax
SDLT is payable on the market value of each property transferred, at full residential rates including the 5% additional dwelling surcharge. For a £2m portfolio, SDLT alone can easily run to £150,000-£200,000.
Section 162 Incorporation Relief
This is the prize. If your portfolio qualifies as a business (not passive investment), CGT is deferred until you sell the company shares. Tests typically applied:
- A meaningful number of properties (typically 5+)
- Active, hands-on management (typically 20+ hours per week)
- A genuine business structure (records, accounts, staff or systems)
- Continuous trading for a sustained period (typically 12+ months)
Get specialist tax advice before relying on s.162.
Mortgage reality
Ltd Co buy-to-let mortgages exist but:
- Rates are typically 0.5-1% higher than personal BTL
- Arrangement fees are larger (1.5-2% common)
- Personal guarantees from directors are standard
- Stress tests are stricter
Getting money out
Once inside the company, extracting profit has its own tax cost:
- Salary: PAYE + NI (around 25-32% combined)
- Dividends: 8.75% / 33.75% / 39.35% after Corp Tax already paid
- Director loan repayment: tax-free if you initially lent money in
- Pension contributions: very efficient if you have headroom
Companies shine when you reinvest, not when you extract everything.
Ongoing admin costs
- Annual accounts and corporation tax: £800-£2,000
- Confirmation statement: £34
- Separate bank account and accounting software
- Companies House public filings
The decision framework
Before incorporating, model:
- One-off costs — SDLT, legal, accounting, mortgage redemption penalties
- Ongoing tax saving — Section 24 relief recovered minus extraction tax
- Payback period — usually 3-7 years
- Long-term plan — sale, retirement, inheritance
If payback is under 5 years and you plan to hold for 10+, incorporation usually wins.
Final word
Incorporation is the right answer for many portfolio landlords and the wrong answer for many one-property landlords. Run the numbers with a property-specialist accountant before you transfer a single deed.
Frequently asked questions
What is Section 24 and why does it matter?+
Since 2020, individual landlords cannot deduct mortgage interest as an expense — they only get a 20% tax credit. Higher-rate taxpayers effectively pay tax on revenue, not profit. Companies are unaffected.
What is Incorporation Relief?+
Section 162 TCGA 1992 — if you transfer a business into a company in exchange for shares, CGT is deferred. HMRC requires evidence the portfolio is a genuine business, not passive investment.
How many properties do I need to incorporate tax-efficiently?+
There is no statutory minimum, but HMRC and case law suggest 5+ properties with active management of 20+ hours per week is the working threshold.
Will I pay SDLT on the transfer?+
Yes — SDLT is payable at full rates on each property transferred, including the 5% additional dwelling surcharge.
Can I get a buy-to-let mortgage as a limited company?+
Yes — most major BTL lenders now offer Ltd Co products, but rates are typically 0.5-1% higher.
How do I get money out of a company?+
Salary, dividends, director loan repayment, or pension contributions. Each has different tax implications.
What is the corporation tax rate?+
Currently 19% on profits up to £50,000, 25% above £250,000, with marginal relief in between.
Are there ongoing costs?+
Yes — annual accounts and corporation tax return (£800-£2,000), Companies House filings, and a separate bank account.
Should I use an SPV?+
Most landlords use a Special Purpose Vehicle (SPV) — a Ltd Co with SIC code 68209. Required by most BTL lenders.
Can I incorporate just some properties?+
Yes, but partial incorporation will not qualify for s.162 relief — you will pay CGT on the transferred properties at the time of transfer.
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