From April 2027, UK landlords face a significant tax landscape change with separate property income tax rates replacing standard income tax on rental profits. This creates a stark choice: corporation tax vs income tax for landlords in 2027 — with company ownership offering 19% corporation tax versus 22% basic rate property income tax for personal ownership.
The gap widens further for higher-rate taxpayers, who'll pay 42% on property income compared to 25% corporation tax. This fundamental shift makes the incorporation decision more critical than ever for property investors.
The 2027 Tax Rate Changes: What's Different?
The introduction of separate property income tax rates from April 2027 marks the biggest change to landlord taxation in decades. Unlike the current system where rental income is taxed at general income tax rates, property income will now face distinct rates:
- Basic rate property tax: 22% (previously 20%)
- Higher rate property tax: 42% (previously 40%)
- Additional rate property tax: 47% (previously 45%)
Meanwhile, corporation tax rates remain unchanged at 19% for profits up to £250,000 and 25% above this threshold. This creates a clear advantage for company ownership, particularly for higher-rate taxpayers.
The 19% vs 22% property tax comparison shows even basic rate landlords save 3 percentage points by incorporating. For a landlord with £30,000 annual rental profit, this represents £900 less tax per year through a company structure.
Corporation Tax vs Income Tax: The Numbers
Let's examine how company vs personal ownership in 2027 affects different landlord scenarios:
Basic Rate Landlord Example
A landlord with £25,000 rental profit and £20,000 employment income (total £45,000):
- Personal ownership: £25,000 × 22% = £5,500 property tax
- Company ownership: £25,000 × 19% = £4,750 corporation tax
- Annual saving: £750 through incorporation
Higher Rate Landlord Example
A landlord with £40,000 rental profit and £35,000 employment income (total £75,000):
- Personal ownership: £40,000 × 42% = £16,800 property tax
- Company ownership: £40,000 × 19% = £7,600 corporation tax
- Annual saving: £9,200 through incorporation
These examples exclude extraction costs (dividends, salary) which we'll cover below, but demonstrate the significant tax advantages available through company ownership.
Beyond Tax Rates: Other Key Differences
Mortgage Interest Relief
The Section 24 restrictions continue to apply to personal landlords, limiting mortgage interest relief to 20% basic rate credit. Companies escape this restriction entirely, claiming full mortgage interest as a business expense against corporation tax.
For a landlord with £15,000 annual mortgage interest:
- Personal ownership: Maximum £3,000 tax credit (20% of £15,000)
- Company ownership: £15,000 full deduction against profits
Capital Gains Tax
Personal landlords benefit from lower CGT rates (18% basic rate, 24% higher rate) compared to companies paying corporation tax on capital gains. However, companies can distribute gains as dividends, potentially creating tax planning opportunities.
The £3,000 annual CGT exemption remains available to individuals but not companies, making personal ownership advantageous for smaller disposals.
Business Expenses and Allowances
Companies generally access broader expense deductions and capital allowances. While personal landlords can claim most legitimate property expenses, companies benefit from additional allowances on office equipment, vehicles, and business premises.
Dividend Tax: The Hidden Cost
Corporation tax represents only the first layer of company taxation. Extracting profits as dividends triggers additional tax:
2027 Dividend Tax Rates
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
The combined effective rate for company profits extracted as dividends becomes:
- Basic rate taxpayer: 19% corporation tax + 8.75% dividend tax = 26.1% total
- Higher rate taxpayer: 19% corporation tax + 33.75% dividend tax = 46.4% total
This changes the comparison significantly. For basic rate landlords, the 26.1% combined rate exceeds the 22% property income tax. However, higher-rate landlords still benefit, with 46.4% combined company tax beating 42% property income tax.
When Company Ownership Makes Sense
Despite dividend tax complications, company ownership typically advantages:
- Higher-rate taxpayers: Significant savings even after dividend extraction
- Portfolio growth strategies: Retaining profits for reinvestment avoids dividend tax
- High mortgage borrowing: Full interest relief provides substantial benefits
- Multiple property acquisition: Companies access better commercial lending rates
- Succession planning: Shares transfer more easily than direct property ownership
Professional Landlords and Trading Status
Landlords operating at commercial scale may qualify for trading status, accessing additional reliefs like entrepreneurs' relief on disposal. The new property income tax rates make this distinction more valuable, as trading income potentially remains subject to general income tax rates.
When Personal Ownership Remains Better
Personal ownership may suit:
- Basic rate taxpayers needing regular income: 22% property tax beats 26.1% company extraction
- Small portfolios with low borrowing: Section 24 impact minimal
- Property flippers: Lower CGT rates on personal ownership
- Pension contribution strategies: Rental profits can support pension contributions
- Mortgage accessibility: Some lenders prefer personal ownership
The Incorporation Process
Transferring existing properties to a company typically triggers capital gains tax, making incorporation expensive for properties with significant gains. However, new acquisitions through companies avoid this issue.
Our complete guide to BTL companies covers the incorporation process in detail, including timing strategies and cost considerations.
Transition Strategies
Rather than immediate wholesale incorporation, many landlords adopt hybrid approaches:
- Retain existing properties personally
- Purchase new properties through companies
- Gradually transfer properties during lower-gain periods
- Use spousal transfers to utilise both CGT exemptions
Administrative Considerations
Company ownership increases compliance burdens:
- Companies House filings: Annual confirmation statements and accounts
- Corporation tax returns: Annual CT600 submissions
- VAT registration: Often required sooner due to rental income levels
- Making Tax Digital: Digital record-keeping and quarterly reporting
These requirements typically necessitate professional accountancy support, adding £1,000-3,000 annually in fees. However, for higher-rate taxpayers, the tax savings usually justify these costs.
Professional Advice: Essential for 2027 Planning
The 2027 changes create complex planning opportunities requiring specialist input. Factors to consider include:
- Current and projected income levels
- Portfolio growth ambitions
- Existing mortgage arrangements
- Capital gains exposure on current properties
- Family and succession planning needs
A specialist property accountant can model various scenarios and recommend optimal structures for your specific circumstances.
Key Takeaways for 2027
The corporation tax vs income tax choice for landlords in 2027 depends on individual circumstances, but key principles emerge:
- Higher-rate taxpayers: Company ownership offers clear advantages despite dividend tax
- Basic rate taxpayers: Benefits depend on income extraction needs and mortgage levels
- Growth-focused investors: Companies provide superior tax efficiency for reinvestment
- Income-dependent landlords: Personal ownership may remain preferable for regular extraction
The 19% vs 22% property tax differential makes incorporation more attractive than ever, but the complete picture requires careful analysis of your specific situation.
With April 2027 approaching, now is the time to review your structure and consider whether the new tax landscape justifies incorporation. The potential savings for many landlords will be substantial, making this one of the most important tax planning decisions in property investment.