2027 Tax Rates and the Incorporation Decision for UK Landlords

From 6 April 2027 rental income stops being taxed like any other income. Finance Act 2026 (sections 6 to 7 and Schedule 1, Royal Assent 18 March 2026) introduced separate property income rates of 22% basic, 42% higher and 47% additional, two points above the general rates that applied before. For the first time, the rate a landlord pays on rent is set deliberately higher than the rate on earnings or savings, and that single change is enough to reopen a question many landlords had filed away: is it time to hold the portfolio through a limited company?

The honest answer is that the 2027 rates strengthen a case that was already strong for some landlords and still does not stack up for others. A company pays corporation tax of 19% to 25% on its rental profit, well below the new personal rates, but that profit has to be extracted before you can spend it, and getting it out is itself taxed. The decision has never been about comparing 22% with 19% in isolation. It is about your marginal rate, how much you borrow, whether you live on the rent or reinvest it, and what it costs in capital gains tax and stamp duty to move existing property into a company at all. This guide works through each of those in turn.

What changes on 6 April 2027

The new rates apply to property income after allowable expenses but before the Section 24 mortgage interest restriction. They cover landlords in England, Wales and Northern Ireland. Scotland is the only part of the UK carved out: Scottish residents pay property income tax at Holyrood-set rates instead. There is no separate Welsh property rate for 2027/28; the power for Wales to set its own property rates is a future enabling provision in Finance Act 2026 that is not in force for that year.

Band	General income tax rate (to 2026/27)	Property income rate (from 2027/28)
Basic rate	20%	22%
Higher rate	40%	42%
Additional rate	45%	47%

The personal allowance (£12,570) still applies against total income, and the band you fall into depends on all your income, not just rent. A salaried higher-rate taxpayer with a small rental profit pays 42% on that profit from 2027, even though the rent on its own would have sat in the basic band. For the enacted rate detail and how it interacts with the mortgage interest restriction, see our note on the 2027 property tax rates and Section 24; this guide stays on the incorporation question.

Companies are untouched by these rates. A company holding rental property pays corporation tax: 19% on profits up to £50,000, 25% on profits above £250,000, and an effective 26.5% on the slice between those thresholds because of marginal relief (computed under CTA 2010 Part 3A, section 18B). Most ordinary buy-to-let companies sit comfortably in the 19% band. The marginal-relief limits are divided by the number of associated companies, so a landlord running several special purpose vehicles needs to watch the £50,000 threshold split across them.

How the 2027 rates change the incorporation case

The widening gap between personal and corporate rates is real, but the part that gets quoted out of context is the basic-rate comparison. Treating 22% versus 19% as a 3% saving ignores extraction. Here is the same profit, retained versus drawn, for each type of landlord.

Basic-rate landlord: usually still better off personally

Take a landlord with £35,000 of employment income and £15,000 of rental profit, who needs the rent to live on. Personally, the rental profit is taxed at 22% from 2027, costing £3,300. Inside a company the £15,000 profit bears 19% corporation tax (£2,850), leaving £12,150. Drawing that as a dividend uses the £500 allowance and is then taxed at 10.75%, roughly another £1,250. Combined corporate and dividend tax is around £4,100, against £3,300 personally. The company is worse, before you add the cost of running it.

The arithmetic only flips for a basic-rate landlord who reinvests rather than draws. If the £12,150 stays in the company to buy the next property, only the 19% has been suffered and the corporate route is genuinely cheaper. The honest summary: for a basic-rate landlord living on the rent, 2027 changes very little and incorporation usually does not pay.

Higher and additional-rate landlords: the case sharpens

Now a landlord with £60,000 of employment income and £20,000 of rental profit. From 2027 that profit is taxed at 42% personally, £8,400. Inside a company it bears 19% corporation tax, £3,800, retaining £16,200. The mistake to avoid is assuming full extraction beats that personal charge on rate alone. Draw the whole £16,200 as a higher-rate dividend at 35.75% (after the £500 allowance) and the dividend tax is £5,612.75, so the combined corporate-plus-dividend cost is £9,412.75, an effective 47.06% that is above the £8,400 personal charge, not below it. Even at the current 33.75% upper dividend rate the combined cost is £9,098.75, still above £8,400. On full draw the company loses on rate alone, exactly as it does for the basic-rate landlord above.

What makes the higher-rate case is not full-extraction rate arbitrage; it is profit retention and full interest relief. A landlord who only needs part of the rent and leaves the rest invested has suffered just the 19% on the retained slice, well under 42%, and a geared landlord gains again from deducting mortgage interest in full rather than at the restricted Section 24 credit (see below). For additional-rate landlords facing 47% personally against 19% to 25% corporation tax, the same logic applies with a wider gap on retained and reinvested profit. The corporate route earns its keep where rent is reinvested and interest is relieved in full, not where every pound is drawn out.

The leverage multiplier: Section 24

For geared portfolios the rate gap is only half the story. A personally held property only relieves mortgage interest as a Section 24 basic-rate credit, which rises to 22% from 2027 in step with the new basic rate, so no new wedge opens, but a higher-rate landlord still relieves interest at 22% while paying tax on the rent at 42%. A company deducts the same interest in full against profit before corporation tax. On a heavily mortgaged property the company can be paying tax on a fraction of the profit the individual is taxed on. For a leveraged higher-rate landlord, full interest relief, not the headline rate, is the single biggest driver toward a company.

Factor	Personal ownership (from 2027)	Limited company
Tax on rental profit	22% / 42% / 47%	19% to 25% corporation tax
Mortgage interest relief	Section 24 credit at 22%	Deducted in full before tax
Getting the money out	Already yours	Dividend or director's loan, taxed again
CGT to set up	None (already owned)	18% / 24% on transfer, unless s.162 defers it
SDLT to set up	None	5% surcharge on transfer, unless partnership relief
Annual admin	Self assessment, MTD from £50k	Company accounts, CT return, payroll if salaried

The cost of getting there: CGT on incorporation

The most expensive part of incorporating an existing portfolio is rarely the running cost; it is the entry charge. Transferring property to your own company is a disposal to a connected person, deemed to happen at market value regardless of what actually changes hands. The gain is residential capital gains tax at 18% for basic-rate and 24% for higher-rate taxpayers (the unified rates under FA 2024), after the £3,000 annual exempt amount.

On a portfolio sitting on £100,000 of latent gains, a higher-rate landlord faces roughly £24,000 of CGT to incorporate. The annual saving from corporate ownership has to recover that before incorporation is in profit, which is why the decision turns on the size of the gain as much as on the rate gap. Our guide to calculating CGT on a transfer to a company walks through the figures.

Section 162 incorporation relief

The CGT can be deferred, not avoided, under section 162 TCGA 1992. Where the whole of a business (everything except cash) is transferred to a company wholly or partly in exchange for shares, the gain is rolled into the base cost of those shares rather than taxed on transfer. There is no immediate CGT, though the deferred gain resurfaces if the shares are later sold.

The obstacle is the word business. HMRC accepts incorporation relief for property only where the lettings amount to a genuine business, with active and time-intensive management of a portfolio, not passive rent collection from one or two properties. Ramsay v HMRC [2013] is the leading authority. A landlord spending substantial hours each week running a sizeable portfolio has a strong claim; a single buy-to-let does not. Treat section 162 as available to portfolio landlords who can evidence the activity, and assume it is not available otherwise. The same business test underpins the wider section 162 incorporation relief rules.

Stamp duty on the transfer

SDLT is the cost landlords most often forget. The company is treated as acquiring the property at market value, and as a company buying residential property it pays the 5% additional-dwellings surcharge on top of the standard SDLT bands (the surcharge rose from 3% to 5% from 31 October 2024). There is no group relief between you and your own new company.

The exception is genuine partnership incorporation under FA 2003 Schedule 15. Where a real, pre-existing letting partnership transfers its portfolio into a connected company, the sum-of-lower-proportions calculation can reduce the chargeable consideration, occasionally to nil. HMRC scrutinises these heavily: the partnership must be genuine and established (partnership returns, partnership accounting, joint borrowing), not assembled weeks before incorporation, and a withdrawal of capital within three years can claw the relief back. It is not a shortcut for a husband-and-wife joint-ownership portfolio with no real partnership behind it. The buy-to-let limited company guide covers the structuring choices in full.

Living off a company: extraction in practice

A company is a tax-deferral and reinvestment vehicle far more than a tax-elimination one. The corporation tax saving is real, but profit inside the company is the company's, not yours, and most landlords eventually want to spend it. There are three routes out.

Salary is deductible for the company but lands back in income tax and National Insurance, and only makes sense up to the point it uses an otherwise wasted personal allowance. Dividends come from post-tax profit and are taxed, after the £500 dividend allowance, at 10.75% (basic), 35.75% (higher) and 39.35% (additional). Stacking corporation tax and dividend tax is what erodes the headline corporate advantage, which is why a landlord who draws everything sees a much smaller benefit than one who reinvests.

The route that makes incorporation work best early on is the director's loan. If you incorporated under section 162, the share-for-property exchange creates a credit balance: the company owes you the value transferred. That balance can be drawn down tax-free, ahead of any dividend, until it is exhausted. A landlord who plans extraction around the loan account can take income for years with little or no further tax. Drawing too fast burns through the balance and forces an early switch to taxed dividends, so it pays to model the drawdown. Our note on a director's loan repayment strategy sets out the mechanics. Beware the opposite problem too: overdrawing the loan account so the company owes nothing and you owe the company triggers a section 455 charge at 35.75% on the overdrawn amount until repaid.

Estate planning: a frequent misconception

Incorporation is sometimes sold as an inheritance tax fix, on the basis that company shares attract Business Property Relief. For a buy-to-let company this is wrong. BPR applies to trading businesses, and a company holding residential property for rent is an investment business, not a trade. Pawson v HMRC [2013] confirmed that passive letting fails the relief, and shares in an investment company fail it for the same reason. Incorporation can help estate planning through share structuring and gifting over time, but it does not turn a rental portfolio into a BPR-qualifying asset. Anyone told otherwise should ask which case supports it.

Making Tax Digital and the compliance angle

From 6 April 2026, Making Tax Digital for Income Tax is mandatory for individual landlords with qualifying income above £50,000, with the threshold falling to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. That means digital records and quarterly updates for personally held property. A company reports under corporation tax instead and is outside MTD for Income Tax, so incorporating can simplify a landlord's personal filing position. It is a genuine side benefit, but it is a side benefit: nobody should incorporate to dodge quarterly updates when the CGT and SDLT entry costs dwarf the compliance saving.

Whole portfolio, selected properties, or new purchases only

The decision is not binary. Three routes exist, each with different tax consequences.

• Incorporate the whole portfolio. This is the only route that can access section 162 relief, because the relief requires the entire business to transfer. Best for active portfolio landlords with large latent gains who can evidence a business.
• Incorporate selected properties. Moving only the highest-yielding or most heavily geared properties cannot use section 162 (the whole business has not transferred), so CGT crystallises on what you move. Suits landlords who want corporate ownership of the leveraged stock while keeping low-gain or near-disposal properties personal.
• Buy future purchases through the company. The cleanest route of all, because there is no transfer, no CGT and no SDLT surcharge beyond the surcharge any additional purchase would attract anyway. A landlord uncertain about incorporating an existing portfolio can still start a company for the next acquisition.

Where this leaves you

The 2027 rates push more higher and additional-rate landlords across the line into incorporation, particularly geared ones who benefit twice over from full interest relief and the wider rate gap. They do far less for basic-rate landlords who live on the rent, for whom the extraction cost usually cancels the corporate advantage. And for everyone, the entry cost (CGT and SDLT) is what determines whether a structure that saves tax every year ever recovers what it cost to build.

The right answer depends on numbers specific to you: your marginal rate from 2027, the latent gain in each property, your gearing, how much rent you draw, and whether you qualify for section 162. Before acting, model both ownership structures over a realistic holding period, including the upfront CGT, the SDLT, and the cost of extraction, not just the headline rates. If incorporation is on your mind, a specialist property accountant can run those scenarios for your portfolio.