Incorporating a property portfolio

Why landlords incorporate

Holding property in a limited company avoids the Section 24 restriction on mortgage interest, taxes retained profits at corporation tax rates (19–25%), and usually lets you borrow more, because lenders rent-test companies at 125% interest cover instead of 145%. For a growing portfolio, that can be significant. But moving property you already own is a sale in the eyes of HMRC, and the costs can be large.

The costs of moving an existing portfolio

Stamp duty land tax

The company buys each property at market value, so SDLT is normally due, including the 5% surcharge on additional residential property. Where six or more dwellings are bought in a single transaction, non-residential rates can apply instead. The restructure calculator shows both. Some landlords who genuinely run their portfolio as a partnership may qualify for partnership relief. HMRC scrutinises these arrangements closely, and anti-avoidance rules apply.

Capital gains tax

Transferring to a company is a disposal at market value, so capital gains tax is due on the gain unless a relief applies. Residential property gains are taxed at 18% or 24%.

Incorporation relief (section 162)

Section 162 TCGA 1992 lets you defer the gain when a business is transferred to a company in exchange for shares. For landlords the key question is whether the letting activity is a business rather than a passive investment. Case law (Ramsay v HMRC) suggests a substantial time commitment and active management, often cited as around 20 hours a week. HMRC decides case by case, so this needs specialist tax advice.

Mortgages and early repayment charges

Personal mortgages can't be moved to a company. Each property needs a new limited company mortgage, and redeeming existing fixed rates early can trigger early repayment charges. Timing the move around fix end dates can save thousands.

How the refinance works

1. Set up the company, usually an SPV with property SIC codes (68100, 68209, 68320 or 68201), after taking tax advice on the structure.
2. Get the properties valued. The company pays market value, and lenders lend on that value.
3. Arrange limited company mortgages with lenders that accept purchases from a connected person. Not every lender does.
4. Fund the difference. The equity you leave in is often recorded as a director's loan to the company, which can be repaid tax-efficiently later. Your accountant will advise.
5. Complete the sale to the company, redeem the personal mortgages and file the SDLT returns.

We arrange the new company mortgages, check which lenders accept the transfer, and time redemptions around your early repayment charges. Your accountant handles the tax.

Is incorporation right for you?

It tends to suit higher-rate taxpayers with meaningful borrowing who plan to keep and grow the portfolio. It suits less well landlords with large gains and no route to relief, small low-geared portfolios, and anyone planning to sell soon. Run your numbers in the portfolio restructure calculator, then take advice.

Frequently asked questions