Moving your rental portfolio into a limited company: what it actually costs to do it
Incorporation is pitched to landlords as the fix for the mortgage interest restriction, and the annual saving can be real. What gets skated over is the entry bill: two separate market-value tax charges that fall on completion day, on a transfer that puts no cash in your pocket. This piece sets out both halves of the sum with current 2026/27 figures, shows the arithmetic on an illustrative portfolio, and names the narrow circumstances in which the numbers genuinely work.
Why incorporation keeps being sold to landlords
Since April 2020 an individual letting residential property has not been able to deduct mortgage interest from rental profit at all. Instead there is a tax reduction worth 20 per cent of the lower of finance costs, property business profits and income above the personal allowance, and that reduction cannot create a refund. A company suffers no such restriction. Interest is an ordinary deduction against profits taxed at 19 per cent up to GBP 50,000 and 25 per cent above GBP 250,000, with marginal relief in between. That is a real and often substantial difference, which is precisely why seminars, brokers and structuring firms lead with it. What they lead with rather less often is that the comparison is only half the sum. The saving arrives gradually, over years, out of future profits. The costs arrive immediately, in cash, on completion day. Anyone weighing this up should insist on seeing both halves written on the same sheet of paper before signing a thing.
The two charges that land on day one
Transferring a property to your own company is a disposal at market value for capital gains tax, because you and the company are connected persons; no money needs to change hands for the charge to arise. The gain is market value less your original cost and allowable expenditure, taxed at 18 per cent within the basic rate band and 24 per cent above it, with only a GBP 3,000 annual exempt amount for 2026/27 standing between you and the bill. It must be reported and paid within 60 days of completion, not at the next self assessment deadline. Quite separately, the company pays stamp duty land tax on the market value of what it receives, again regardless of whether cash moves, and its return and payment fall due within 14 days of completion. Two market-value charges, two short clocks, on a transaction that has generated no proceeds at all. That is the whole difficulty in a sentence.
Section 162 and the word carrying all the weight
Incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 can defer the capital gains tax entirely, by rolling the gain into the base cost of the shares you receive. Four substantive conditions must all hold. You must be transferring a business rather than passively holding investments; it must pass as a going concern; the whole of the assets of that business other than cash must go with it; and the business must be transferred wholly or partly in exchange for shares issued by the company. Take shares plus a director's loan account and the relief is cut proportionately, so the cash element is taxed straight away. One thing has changed for anyone acting now. For transfers on or after 6 April 2026 the relief is no longer automatic: section 39 of the Finance Act 2026 repealed the section 162A election and wrote a claim requirement into section 162 itself, so you must claim on or before the first anniversary of the 31 January following the tax year of the transfer. Miss that and the deferral is lost. The word carrying all the weight, though, is business. Ramsay v HMRC [2013] UKUT 0226 (TCC) confirmed that a lettings operation can be one, and HMRC's Capital Gains Manual at CG65715 accepts relief where an individual spends 20 hours or more a week personally undertaking the sort of activities indicative of a business. Two flats and a managing agent will not clear that bar.
Stamp duty does not follow the capital gains relief
Here is the point most often glossed over on stage. Incorporation relief is a capital gains relief and does nothing whatever for stamp duty. The company is acquiring dwellings, so the higher rates for additional dwellings apply from GBP 40,000: 5 per cent to GBP 125,000, then 7 per cent to GBP 250,000, 10 per cent to GBP 925,000, 15 per cent to GBP 1.5 million and 17 per cent above that. Worse, a flat 17 per cent displaces those bands altogether wherever the consideration attributable to a single dwelling exceeds GBP 500,000, unless a relief is claimed, property rental business relief being the usual candidate, and its conditions must genuinely be met. Note that the GBP 500,000 test is applied dwelling by dwelling on a just and reasonable apportionment, not to the transaction total, so a portfolio of modest flats escapes it while one substantial house does not. The one real escape from the bands themselves is narrow. Where the properties are held in a partnership, paragraph 18 of Schedule 15 to the Finance Act 2003 reduces the chargeable consideration by reference to the sum of the lower proportions, which can bring it to nil where the partners and the shareholders line up. Connected-party partnership incorporations attract close attention for exactly that reason. Note too that if the partnership was itself assembled by transferring properties into it, paragraph 17A charges tax where capital is withdrawn within three years of that earlier transfer, and a partnership assembled shortly before the incorporation invites the obvious question about its purpose.
An illustrative worked example
Take an illustrative case, constructed purely to show the arithmetic rather than drawn from any real portfolio. Four flats worth GBP 1.2 million in total, originally bought for GBP 700,000, carrying GBP 600,000 of mortgages, held personally by a higher rate taxpayer. The gain is GBP 500,000, so capital gains tax at 24 per cent comes to GBP 120,000, payable 60 days after completion. Stamp duty for the company at the higher rates on GBP 1.2 million comes to GBP 123,750: 5 per cent on the first GBP 125,000, 7 per cent on the next GBP 125,000, 10 per cent on the next GBP 675,000 and 15 per cent on the final GBP 275,000. No single flat here is worth more than GBP 500,000, so the flat 17 per cent charge never arises; replace the four flats with one house at GBP 1.2 million and the same transfer costs GBP 204,000 in stamp duty unless property rental business relief is claimed and its conditions met. Combined, the four-flat version is GBP 243,750 of tax on a transfer producing not a penny of cash. Where section 162 applies and is claimed in time, the GBP 120,000 is deferred, but the GBP 123,750 must still be found, alongside legal fees, valuations, lender arrangement fees and possibly early repayment charges. So ask the only question that matters: how many years of interest-relief saving does it take to repay GBP 123,750? If that is longer than you intend to hold the portfolio, the sum has answered itself.
What it costs you every year afterwards
The bill does not stop at completion. Personal mortgages cannot simply travel across with the properties, so the portfolio must be refinanced onto limited company products, which generally price above their personal equivalents and carry their own arrangement fees; that spread quietly erodes the interest-deduction advantage every year you hold. Profits are then taxed twice if you want them in your own hands, first to corporation tax at 19 to 25 per cent, then to dividend tax on what remains at 10.75 per cent, 35.75 per cent or 39.35 per cent from 6 April 2026, with only a GBP 500 dividend allowance. Money retained to buy the next property is efficient; money you need to live on is not. Then there is the annual tax on enveloped dwellings, which reaches a company holding a single dwelling worth more than GBP 500,000. For 2026/27 the charge runs from GBP 4,600 in the GBP 500,001 to GBP 1 million band up to GBP 303,450 above GBP 20 million. A genuine letting business can normally claim relief, but the return still has to be filed annually, and a missed filing is a penalty paid for nothing at all.
Who it genuinely suits, and what to ask
Incorporation earns its keep in a fairly narrow set of circumstances: a portfolio large and actively managed enough to amount to a business on Ramsay principles, borrowing heavy enough that the interest restriction genuinely hurts, a long intended hold so the entry cost has time to amortise, profits you are content to leave inside the company, and either modest accrued gains or a partnership history real enough to support the paragraph 18 route. Reverse any one of those and the answer is usually no. This is general information rather than advice on your own affairs, so before committing put five questions to your accountant in writing and keep the replies: what is my exact stamp duty figure on today's valuations, in pounds; do I meet the business test on evidence I could actually produce to HMRC; is the partnership route available on facts that predate this idea; what will refinancing cost me in rate and fees across five years; and what, in years, is the payback period. If nobody is willing to put those answers in writing, that reluctance is itself your answer.
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This article is general information only and does not constitute tax advice. Figures and dates are current as at the date of writing; any worked example is illustrative. Always consult a qualified adviser before acting.