Should I Incorporate? Decision Framework with Calculator

You only incorporate if the long-term tax saving from getting rid of Section 24 beats the one-off CGT + SDLT + remortgage bill and the ongoing company costs, over a timescale you are happy with.

"This guide provides general information about UK landlord tax obligations. It is not financial or legal advice. Tax treatment depends on your individual circumstances and may change. Consider consulting a qualified accountant or solicitor for advice specific to your situation."

1. What incorporation actually costs you

You do not "move" property into a company for free. You sell it to your own company at market value and several taxes fire.

1. CGT on the transfer

Legal basis:

You are treated as disposing of the property at market value to a connected company under TCGA 1992.

Current CGT on residential property (2025-26 and 2026-27): 18% on gains within the basic-rate band, 24% above that, after the GBP 3,000 annual exemption.

Example -- single BTL:

• Market value now: GBP 200,000.
• Original cost / base cost: GBP 120,000.
• Gain: GBP 80,000.
• Less annual exemption: GBP 3,000 = GBP 77,000 taxable gain.
• As a higher-rate taxpayer, CGT at 24% = GBP 18,480.

If you have multiple properties, your total gains add up before the exemption; it gets very expensive quickly.

Incorporation relief (TCGA 1992 s162) can defer CGT if you genuinely transfer a property business as a going concern in exchange for shares. Conditions are tight, and HMRC is challenging aggressive uses, particularly those pushed via LLP / hybrid schemes targeted in Spotlight 69.

Budget 2025 change:

From 6 April 2026, incorporation relief will no longer be automatic. Landlords must claim and meet stricter anti-avoidance conditions. That makes "rely on incorporation relief to wipe CGT" riskier and more HMRC-scrutinised.

2. SDLT on the transfer

Legal basis:

Your company is a separate buyer. Normal Finance Act 2003 / SDLT rules apply.

Company purchases of residential property pay the higher additional dwelling rates and, where over GBP 500,000, potentially the 17% flat rate.

From 31 October 2024, for England:

• Additional property surcharge increased from 3% to 5% above standard SDLT.
• So most incorporations attract 5% on the full price up to GBP 250,000 and 10% on the slice to GBP 925,000 for each property.
• Companies buying single dwellings over GBP 500,000 can face a 17% flat rate in some cases.

Example -- same GBP 200,000 BTL:

• Company buys at GBP 200,000 as an additional dwelling.
• SDLT surcharge 5% on GBP 200,000 = GBP 10,000.

Portfolio example -- 5 properties totalling GBP 1,000,000:

• Assume each in the same 5%/10% bands. Average effective higher-rate SDLT maybe 7-8% per property depending on values.
• On GBP 1,000,000 you are looking at GBP 70,000-80,000 SDLT for the transfer alone, even though you already "own" the properties economically.

3. Remortgaging and ERCs

Most personal BTL loans:

• Do not allow simple transfer to a company without a new application.
• Require full redemption and new company BTL mortgages.

So you face:

• Early repayment charges (ERCs) on existing loans if you are mid-fix.
• New arrangement fees (1-2% of each company loan).
• Possibly higher interest rates on company BTL versus your old personal deals.

On a 5-property portfolio at GBP 650,000 total mortgages, 1.5% ERCs + 2% new arrangement fees can alone run to GBP 22,750.

4. Legal and professional fees

You will need:

• Tax advice on CGT, SDLT and incorporation relief.
• Legal work to transfer titles.
• Broker work to arrange new company finance.
• Accounts setup and possibly valuation reports.

Realistic range:

• Small portfolio: GBP 2,000-4,000 total.
• Larger / complex structures: GBP 5,000-10,000+.

5. Ongoing company running costs

Annually:

• Accountancy: full accounts + CT600 + basic advice usually GBP 500-1,500/year depending on number of properties and complexity.
• Companies House: confirmation statement filing GBP 13/year online.
• Optional: registered office, bookkeeping software, etc., maybe GBP 100-300/year.

On one or two small properties, that can swallow most of the tax benefit. On a bigger portfolio, it is a smaller percentage of rent.

2. What you gain in a company

1. Full interest deduction, no Section 24

Company BTL profits:

• Start from rental income minus all allowable costs, including full mortgage interest, under CTA 2009.
• Corporation Tax is charged on true profit, not "profit before interest".

Compared to individuals suffering Section 24's 20% credit and phantom profit, as set out in guide 2.1.

So at 25% Corporation Tax, every GBP 1 of interest saves 25p in tax. As a higher-rate individual you effectively only get 20p relief per GBP 1 of interest and you get pushed into higher bands.

2. Lower headline rates (on profits kept in the company)

Corporation Tax is 19-25% depending on profit bands (small profits relief etc.) vs 40-45% at higher bands for individuals in 2025-26 and 2026-27.

If you do not need to draw all profits, leaving them in the company lets you reinvest at company rates.

3. Retained profits and leverage

Retained profits can be used for deposits on further purchases without first pushing through personal income tax.

This compounds faster than personal ownership where every pound of profit is taxed at up to 45% before you can re-invest.

4. Inheritance and succession options

Shares in a company can be gifted, split, and structured more flexibly than direct property ownership.

You can plan shareholdings for succession (though you still face IHT and other rules; company ownership does not magically exempt you).

The real benefit is if you are higher-rate, fairly high-LTV, and plan to hold and grow for 10-20 years while leaving profits in the company.

3. Two worked examples: single BTL and 5-property portfolio

Assume:

• Rent: GBP 1,000/month per property = GBP 12,000/year.
• Interest at 5.5% typical 2025-26 BTL rates.
• Higher-rate taxpayer personally (40%).
• Ignore other expenses for clarity (the Section 24 distortion is all about interest).

A. Single property -- GBP 200k with GBP 130k mortgage (65% LTV)

Personal:

• Interest: GBP 130,000 x 5.5% = GBP 7,150/year.
• True profit: GBP 4,850/year.
• Tax under Section 24:
• Taxable profit: GBP 12,000.
• Tax before credit at 40%: GBP 4,800.
• Credit: 20% of 7,150 = GBP 1,430.
• Final tax: GBP 3,370 (approx).
• Effective tax rate on real profit (4,850): about 69%.

Company:

• Profit: 12,000 - 7,150 = GBP 4,850.
• Corporation Tax at 25%: GBP 1,212.50.
• Net available for reinvestment: GBP 3,637 vs GBP 1,480 after personal tax.

Breakeven for incorporation on a single property:

• CGT on transfer: GBP 18,480.
• SDLT: GBP 10,000.
• Total: ~GBP 28,500 plus fees.
• Annual extra tax under Section 24 vs company: ~GBP 2,100.
• Simple payback: 13-14 years, ignoring time value and company extraction tax.

For many landlords, that is marginal unless they plan 20+ year holds and do not need the income personally.

B. 5-property portfolio -- GBP 1M with GBP 650k mortgages (65% LTV)

Per property:

• Interest: GBP 7,150/year.
• Real profit: GBP 4,850.
• Section 24 tax at 40%: approx GBP 3,370.
• Company tax at 25%: approx GBP 1,213.

Portfolio totals:

• Real profit: GBP 24,250/year.
• Tax personally under Section 24: approx GBP 16,850.
• Tax in company: approx GBP 6,063.
• Annual tax saving in company: roughly GBP 10,800/year.

Transfer costs (rough order of magnitude):

• CGT: say GBP 200,000 total gains across the portfolio. At 24% that is GBP 48,000, less some allowances if staggered.
• SDLT at 5-10% effective: GBP 70,000-80,000 on the GBP 1M value.
• Fees / ERCs / arrangement fees: easily GBP 20,000+.
• Total upfront hit: GBP 140,000-150,000+, even with some reliefs and smart planning.

Rough payback:

• GBP 140,000 / 10,800 = approx 13 years.

If your gains are lower (bought more recently) or you qualify safely for incorporation relief, CGT may be deferred and upfront cost drops. If your gains are higher or you hit 17% company SDLT on some units, cost rises.

This is why good accountants say: for heavily leveraged, large portfolios at high personal tax rates, incorporation can make sense over 10-20 years. For modest portfolios or lower LTVs, the upfront hit often does not pay back within your intended holding period.

4. Property118 model, HMRC Spotlights and why it is risky

Property118 and similar outfits have heavily marketed incorporation / hybrid structures:

• LLP-based property businesses that are then incorporated.
• Claims of "no CGT, no SDLT, no Section 24", often using complex sequences of LLP, company and liquidation.

HMRC responses:

• Spotlight 69 directly attacks schemes using LLPs and subsequent liquidation to avoid CGT on incorporation of property businesses.
• HMRC stresses incorporation relief only applies where a genuine business is transferred as a going concern in exchange for shares, and that many landlord schemes fail this or fall foul of anti-avoidance.
• Budget 2025 changes (from 6 April 2026) end automatic incorporation relief, requiring positive claims and enabling more granular denial where tax avoidance is a main purpose.

In plain English:

HMRC has these schemes in its sights. You risk:

• Back-dated CGT and SDLT with interest.
• Penalties for deliberate tax avoidance.
• Expensive unwinding of complex structures.

A simple, clean incorporation with clear business evidence and conservative assumptions is very different from a marketed "no tax" structure. The former can still work. The latter is being dismantled.

5. Alternatives to full incorporation

You do not have to go "all personal" or "all company".

Practical alternatives:

Buy new properties in a company, keep old ones in your name

• Avoids CGT/SDLT on transfers.
• Over time, more of your growth sits in the company and less is exposed to Section 24.

De-leverage personal portfolio

• Paying down mortgages reduces the interest that Section 24 bites on and shrinks phantom profit / band creep.
• You might choose to sell weaker units, pay down debt on the stronger ones.

Mix of ownership

• Personally own low-geared units you might want to live in or sell with PPR relief.
• Company owns high-yield, high-LTV stock where Section 24 would otherwise wreck the numbers.

Time your holds and disposals

• Sell units with biggest latent gains while CGT is 18/24% and allowance is GBP 3,000, especially if you are near retirement and do not want a large future CGT bill.

These approaches avoid a single enormous tax event and give you flexibility.

6. What forums get wrong about incorporation

Common myths:

"If you are higher-rate, you should definitely incorporate." Reality: whether it pays depends on gains, LTV, time horizon and whether you can safely claim incorporation relief. For many small portfolios the upfront CGT + SDLT + fees never fully pay back.

"HMRC has blessed the Property118 model." Reality: HMRC does not approve schemes. It has instead issued Spotlights warning against landlord incorporation arrangements using LLPs and hybrid structures.

"Incorporation relief means no CGT or SDLT." Reality: Incorporation relief only defers CGT and only where strict "business" tests are met. It does not remove SDLT/ADS at all; the company still pays the 5%+ surcharge and possibly 17% on high-value units.

"The government will reverse Section 24 so it is not worth changing structure." Reality: Section 24 has been fully in force since 2020 and has survived multiple Budgets. CGT and SDLT changes in 2024-26 have made incorporation more expensive at the margin, not less.

If you are a higher-rate taxpayer with a heavily mortgaged multi-property portfolio and a 20-year horizon, incorporation can make sense, but only with a proper spreadsheet, real CGT/SDLT numbers, and your accountant's blessing. If you have one or two modestly geared BTLs, the tax and transaction cost to shift them into a company rarely stacks up.

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