From 6 April 2027 the question of corporation tax versus income tax for landlords stops being academic. Finance Act 2026 (sections 6 to 7 and Schedule 1, Royal Assent 18 March 2026) charges rental profit at its own personal rates of 22% basic, 42% higher and 47% additional, two points above the general income tax rates that applied before. A company holding the same property pays corporation tax of 19% to 25% instead. On the face of it the company wins on every line. The reality is more interesting, because company profit is taxed twice: once inside the company, and again when you take it out.
This guide compares the two tax regimes head to head. It is not about whether to restructure an existing portfolio (our companion guide on the 2027 rates and the incorporation decision covers the CGT and SDLT entry costs of getting there). It is about how each regime actually taxes a pound of rental profit, where the 19% headline holds up, and where it quietly evaporates once you need to spend the money.
Free Incorporation and company structures tool
See the real cost and saving of incorporating
Our interactive tool is built for a larger screen. Tell us your numbers and a specialist will send your figure and the next sensible step, with no obligation.
The two regimes side by side
Personal ownership taxes you once. Your share of the rental profit is added to your other income and charged at your property marginal rate from 2027. Company ownership taxes the same profit twice: the company pays corporation tax, and you pay again, as salary or dividends, on whatever you draw out. The whole comparison turns on that second layer.
| Feature | Personal ownership (income tax) | Company ownership (corporation tax) |
|---|---|---|
| Tax on rental profit | 22% / 42% / 47% from 2027 | 19% to 25% corporation tax |
| Layers of tax | One (you, personally) | Two (company, then you on extraction) |
| Mortgage interest relief | Section 24 credit at 22% | Deducted in full before tax |
| Capital gains on sale | 18% / 24% after £3,000 exemption | Corporation tax, no exemption, then extraction |
| Getting the money out | Already yours | Dividend or director's loan, taxed again |
| Reporting | Self assessment, MTD from £50k | Company accounts and CT600 |
Read that table from the top and the company looks unbeatable. Read it from the "getting the money out" row and the picture changes. The rest of this guide works through each line in turn, starting with the rates everyone quotes.
How property income tax works from 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. 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, so anyone telling you Wales sets its own rate now is reading ahead of the statute.
| 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% |
Your band depends on all your income, not just the rent. The personal allowance (£12,570) still applies against total income, and 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. That stacking effect is why so many ordinary working landlords end up in the 42% property band, and why the corporate comparison matters to them and not just to full-time investors.
How corporation tax works for a property company
A company holding rental property pays corporation tax on its profit: 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 (the standard 3/200 fraction 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 how the £50,000 threshold splits across them, or the slices start tipping into the 26.5% band sooner than expected.
Inside the company, interest is fully deductible, there is no Section 24 restriction, and profit retained for the next purchase has only ever borne 19%. That is the strongest version of the corporate case, and it is genuine. The weakness appears the moment the landlord wants the money.
The second layer: what extraction costs
Corporation tax is only the first charge. Profit inside the company is the company's, not yours, and getting it out is taxed again. Dividends come from post-tax profit and are charged, above the £500 dividend allowance, at 10.75% (basic), 35.75% (higher) and 39.35% (additional). Stacking corporation tax and dividend tax is what quietly erodes the headline 19%.
The combined effective rate on company profit that is fully extracted as a dividend, ignoring the small dividend allowance for clarity, is:
| Taxpayer | Corporation tax | Dividend on the rest | Combined effective rate | Personal rate (2027) |
|---|---|---|---|---|
| Basic rate | 19% | 10.75% on 81% | about 27.7% | 22% |
| Higher rate | 19% | 35.75% on 81% | about 48.0% | 42% |
| Additional rate | 19% | 39.35% on 81% | about 50.9% | 47% |
Look down the last two columns. On full extraction, the combined company cost is higher than the personal rate for every band, not lower. The basic-rate landlord pays about 27.7% through a company against 22% personally. The higher-rate landlord pays about 48.0% against 42%. This is the single most misunderstood point in the whole debate: comparing 22% personal income tax with 19% corporation tax is comparing one layer of tax against the first half of two layers. Once you put the second layer back, the company loses on rate alone for a landlord who draws everything.
So when does corporation tax actually win?
The corporate route earns its keep in two situations, and the worked numbers above show why neither is about the headline rate.
When you reinvest rather than draw
If the profit stays in the company to buy the next property, only the 19% corporation tax is ever suffered. There is no dividend, so there is no second layer. A landlord building a portfolio who lives on other income and ploughs the rent back is comparing a flat 19% against 22%, 42% or 47% personally, and the company wins cleanly. This is the real engine of the corporate case: not tax elimination, but tax deferral and faster compounding inside the company.
When the property is heavily geared
For mortgaged portfolios the rate gap is only half the story. A personally held property relieves mortgage interest only 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 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, and that gap can outweigh the extraction cost on its own. For a leveraged higher-rate landlord, full interest relief, not the headline rate, is the strongest argument for a company.
Worked comparison: the same profit, two regimes
Numbers make the point faster than principles. Take an unmortgaged property producing £20,000 of rental profit, held by a higher-rate landlord whose other income already uses the basic band.
Personal ownership. The £20,000 is taxed at 42% from 2027, a charge of £8,400. The remaining £11,600 is yours, with nothing further to pay.
Company ownership, profit retained. The £20,000 bears 19% corporation tax, £3,800, leaving £16,200 inside the company. If that £16,200 is reinvested, the total tax suffered is just £3,800, less than half the personal charge. The company wins decisively.
Company ownership, profit fully drawn. After the £3,800 corporation tax, the £16,200 is drawn as a higher-rate dividend. Above the £500 allowance, 35.75% on £15,700 is about £5,613. Total tax is £3,800 plus £5,613, roughly £9,413, an effective 47%. That is more than the £8,400 the same landlord would have paid owning the property personally. On full extraction the company is worse, exactly as the combined-rate table predicts.
The lesson is not that one regime is better. It is that the answer depends entirely on whether the landlord needs the money. A basic-rate landlord shows the same shape on smaller figures: 22% personally on the profit, against 19% retained or about 27.7% once a basic-rate dividend is taken on top.
See the real cost and saving of incorporating
Skip the spreadsheet. Tell us about your situation and a specialist will review your position and the next sensible step, with no obligation.
Capital gains: the regime difference on sale
The two regimes also part ways when you sell. An individual disposing of residential property pays capital gains tax at 18% (basic rate) or 24% (higher rate) on residential property (the higher rate cut to 24% by Finance Act 2024, with the general CGT rates aligned to the same 18% and 24% at Autumn Budget 2024), after the £3,000 annual exempt amount, and the after-tax proceeds are already theirs. A company pays corporation tax on its gains with no annual exempt amount and no special 18%/24% residential rate, and the after-tax gain still has to be extracted to reach the owner, attracting the second layer again.
For a landlord planning to sell, this often pulls the other way to the rental-income comparison. Personal ownership can be the lighter-taxed route on a one-off disposal, even where the company looks better on annual rental profit. Our complete guide to capital gains tax on property sets out the disposal mechanics in full, and the guide to calculating CGT on a transfer into a company covers the entry charge if you are moving property in.
Extraction routes: getting company profit out efficiently
Because the second layer is what makes or breaks the corporate case, how you extract matters as much as whether you incorporate. There are three routes.
- Salary is deductible for the company but lands back in income tax and National Insurance. It usually only earns its place up to the point it uses an otherwise wasted personal allowance.
- Dividends come from post-tax profit and are taxed at 10.75%, 35.75% or 39.35% above the £500 allowance. This is the second layer in the tables above, and the reason full extraction erases the headline saving.
- Director's loan repayment is the route that makes incorporation work best early on. If existing property was moved into the company, the value transferred creates a credit balance the company owes you, which can be drawn down tax-free ahead of any dividend until it is exhausted.
Plan extraction badly and the corporate advantage disappears into dividend tax. Plan it well, around the loan account and the dividend allowance, and a landlord can take income for years at little further cost. Beware the opposite trap too: overdrawing the loan account so you owe the company triggers a section 455 charge at 35.75% until repaid. Our note on a director's loan repayment strategy works through the sequencing.
Which landlord suits which regime
The honest summary is that neither regime is universally better. The right one follows from your marginal rate, your gearing, and above all whether you draw the rent or reinvest it.
| Your situation | Usually better regime | Why |
|---|---|---|
| Basic-rate, lives on the rent | Personal (income tax) | 22% beats about 27.7% combined once a dividend is drawn |
| Higher-rate, lives on the rent | Often personal | 42% can beat about 47% combined on full extraction |
| Higher or additional-rate, reinvests | Company (corporation tax) | Only 19% suffered on retained profit, well under 42% or 47% |
| Heavily geared, higher-rate | Company | Full interest relief versus the 22% Section 24 credit |
| Planning to sell soon | Personal | 18%/24% CGT and the £3,000 exemption beat corporate gains plus extraction |
| Building a portfolio long-term | Company | Faster compounding on retained, lightly taxed profit |
A point that gets oversold: company shares are sometimes pitched as an inheritance tax fix because they 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. 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, including through a family investment company, but it does not convert a rental portfolio into a relief-qualifying trade.
The cost of switching regimes
Choosing the company regime for property you already own is not free. Transferring property to your own company is a disposal at market value to a connected person, so the latent gain is charged to CGT at 18% or 24% on transfer, after the £3,000 exemption. The company is also treated as buying the property, so it pays the 5% additional-dwellings SDLT surcharge on top of the standard bands. Section 162 incorporation relief can defer the CGT where a genuine property business transfers wholly for shares, but only where the lettings amount to an active business rather than passive investment (Ramsay v HMRC [2013]).
That entry cost is why the regime choice is easiest at the point of purchase: buying a new property through a company involves no transfer, no CGT and no extra SDLT beyond what any additional purchase attracts anyway. For the full restructuring analysis, including section 162, partnership SDLT relief and worked transfer figures, see the 2027 incorporation decision guide and the buy-to-let limited company guide.
Compliance under each regime
The regimes differ in paperwork as well as rates. Personal landlords report through self assessment, and from 6 April 2026 Making Tax Digital for Income Tax is mandatory for those with qualifying income above £50,000, with the threshold falling to £30,000 from 6 April 2027 and £20,000 from 6 April 2028, requiring digital records and quarterly updates. A company reports under corporation tax instead, filing annual accounts at Companies House and a CT600 return, and is outside MTD for Income Tax. Company ownership carries more formal filing, but it sidesteps the personal MTD obligation, which is a genuine, if minor, point in its favour.
Where this leaves the decision
The 2027 rates widen the gap between personal and corporate taxation of rental profit, and that pulls more higher and additional-rate landlords toward a company, especially geared ones who gain twice from full interest relief and the wider rate gap. But the gap on the headline rate is not the whole story, and treating 22% against 19% as a settled 3% saving is the most common, and most expensive, mistake landlords make. Add the second layer, and the corporate route wins on retained profit and loses on fully drawn profit, in every band.
The right regime depends on numbers specific to you: your marginal rate from 2027, how much of the rent you actually need to spend, your gearing, and the latent gain you would crystallise to switch. Before acting, model both regimes over a realistic holding period, including the upfront CGT and SDLT and the cost of extraction, not just the rates. A specialist property accountant can run those scenarios on your actual figures and tell you which regime your portfolio is better off in.