Section 24 changed the arithmetic of being a landlord. A higher-rate individual now gets only a 20% credit on mortgage interest while a company deducts that interest in full, and that single gap is why so many geared landlords look at moving their portfolio into a limited company. Incorporation is not a tax trick, though, and it is not right for everyone. It is a deliberate restructuring with real one-off costs, a strict order of steps, and a few points where a mistake is expensive and hard to undo.
This guide walks the whole process end to end: deciding whether to incorporate at all, forming the company, getting the lending and banking in place, transferring the properties at market value, claiming Section 162 incorporation relief on the capital gains, dealing with stamp duty, and then running the company afterwards. The figures below are current for the 2026/27 tax year.
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Should you incorporate at all? The decision before the steps
Start here, because the worst incorporations are the ones that should never have happened. The case for a company rests almost entirely on full mortgage interest deductibility and on retaining profit at corporation tax rates rather than personal income tax rates. The case against rests on the one-off cost of moving the portfolio and on the second layer of tax when you eventually draw money out as dividends.
A company deducts 100% of its mortgage interest before corporation tax. An individual gets a basic-rate credit only: 20% for 2026/27, rising in step to 22% from 6 April 2027 in England, Wales and Northern Ireland (Scotland aside). For a basic-rate landlord that credit broadly matches their tax rate, so Section 24 barely bites and incorporation rarely pays. For a higher-rate landlord with significant borrowing, the gap between a 40% (rising to 42%) marginal rate and a 20% (rising to 22%) credit is exactly the wedge a company removes. Our deeper comparison of the two routes is in Section 24 vs incorporation: which saves more tax.
The counterweight is extraction. Money inside a company has only paid corporation tax. To spend it personally you generally take dividends, taxed in 2026/27 at 10.75% basic, 35.75% higher and 39.35% additional after the GBP500 allowance. A landlord who needs every pound of rent to live on faces both taxes and often comes out level or worse. A landlord who can leave profit in the company to compound, repay debt and buy more property is the classic incorporation winner. The honest test is not "is corporation tax lower than income tax", it is "will I leave the money in".
Who tends to benefit, and who does not
| Factor | Points towards incorporating | Points against |
|---|---|---|
| Gearing | High loan-to-value, large interest bill restricted by Section 24 | Low or no mortgages, little interest to restrict |
| Tax band | Higher or additional-rate taxpayer | Basic-rate taxpayer (credit broadly matches rate) |
| Plans for the profit | Reinvest, repay debt, grow the portfolio | Need all the rent as personal income now |
| Horizon | Long-term hold and succession planning | Likely to sell up within a few years |
| Portfolio size | Multiple actively managed properties (a genuine business) | One or two passively held lets |
A Section 24 worked example
Take a higher-rate landlord with GBP60,000 of rental income, GBP30,000 of running costs other than finance, and GBP24,000 of mortgage interest. Held personally, the taxable profit is GBP60,000 minus GBP30,000, which is GBP30,000 (the interest is not deducted). Tax at 40% on GBP30,000 is GBP12,000, reduced by the Section 24 credit of 20% of GBP24,000, which is GBP4,800. The personal tax bill is GBP7,200.
Inside a company, the interest is a normal expense. Taxable profit is GBP60,000 minus GBP30,000 minus GBP24,000, which is GBP6,000, and corporation tax at 19% is GBP1,140. The headline difference of around GBP6,000 a year is the prize, but it is only real if the after-tax GBP4,860 stays in the company. Draw it as a higher-rate dividend and roughly 35.75% goes again. Run your own version of this before you do anything else, and see how to calculate the Section 24 tax credit step by step for the full mechanics.
Step 1: Model the numbers and take advice first
The first step is not paperwork, it is analysis. Calculate your current personal tax with the Section 24 credit, then model the corporation tax position, the dividend cost of any income you actually need, and the one-off SDLT and legal cost of transferring. Only then can you see whether incorporation is a saving or an expensive lateral move.
This is also where the make-or-break Section 162 question gets answered: does your letting activity count as a business? That single point decides whether you defer the capital gains or pay them in full, and it is judged on facts, not portfolio size alone. Get it wrong and a transfer you thought was tax-neutral produces a six-figure CGT bill. A property tax specialist who has run incorporations before is the right person to confirm it, alongside a solicitor for the conveyancing and a broker who knows company buy-to-let lending. Coordinated advice, taken early, is what keeps the steps in the right order.
Step 2: Choose your structure and form the company
Almost every landlord uses an ordinary private company limited by shares. It is cheap, well understood by lenders, and flexible enough for the planning that follows. The decisions that matter are not the company type but the share structure and who holds what.
Different share classes (often called alphabet shares, an A class, a B class and so on) let you direct different dividends to a spouse and to adult children, which is the standard way to use lower tax bands across a family. An outright gift of ordinary shares between spouses is protected from the settlements anti-avoidance rule by the spouse exception confirmed in Jones v Garnett, but shares put into the hands of a minor child are caught and the income is taxed back on the parent. Where succession is the goal, a frozen-value preference share for the founder with growth shares for the next generation is a common family investment company design. These choices are far easier to set right at formation than to unwind later, which is why structure belongs before, not after, the transfer.
Register the company through Companies House, choosing a registered office, the directors and shareholders, and the initial shares. Note that company law now requires identity verification for directors and people with significant control, so allow for that. Once incorporated, HMRC sends a company Unique Taxpayer Reference, which you need for banking and lending. For the company-side tax detail on extraction, dividends and director's loans, see our complete guide to buy-to-let limited companies.
Step 3: Banking, lending and tax registration
Open a company bank account before any property moves. Lenders and HMRC both expect company money to flow through a company account, and mixing it with personal funds is the fastest way to create problems at enquiry and at sale.
Lending is the step that most often controls the whole timetable. You cannot carry a personal buy-to-let mortgage into a company, because the transfer is a sale to a separate legal person. Each property generally needs a new company buy-to-let mortgage, the old personal loan is redeemed at completion, and some high-street lenders will not lend to companies at all. Get a decision in principle on company lending before you commit, because a refusal here can stop an incorporation in its tracks. Then register the company for Corporation Tax. Most residential lettings do not involve VAT, and PAYE is only needed if you put yourself on a salary.
Step 4: Transfer the properties at market value
This is the moment everything turns on. Your solicitor transfers each property to the company at its current market value using a TR1 form, the existing mortgage is redeemed and the new company mortgage drawn down, and the Land Registry records the company as the new owner. Because the transfer is to a connected company, HMRC treats it as happening at market value regardless of what actually changes hands, so two taxes are triggered on that value.
The first is capital gains tax on the individual. Residential property gains are taxed at 18% for basic-rate and 24% for higher-rate taxpayers (the unified rates in force since 30 October 2024), after the GBP3,000 annual exempt amount. Without relief, transferring a portfolio that has grown in value can produce a large CGT charge with nothing sold for cash to pay it. That is exactly what Section 162 relief is designed to prevent, covered next. The second is SDLT, dealt with in the step after.
Sequencing matters here. The CGT event, the SDLT event and the new mortgages all land on the completion date, so the legal pack, the lender drawdowns and the valuations must line up to the day. Our deeper walkthrough of the conveyancing mechanics is in how to transfer property into a limited company.
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Step 5: Claim Section 162 incorporation relief on the CGT
Section 162 TCGA 1992 is the relief that makes most landlord incorporations viable. Where a genuine business is transferred to a company wholly or partly in exchange for shares, the capital gain on the transferred assets is rolled into the base cost of the shares you receive, and no CGT is payable at the point of incorporation. The relief is no longer automatic: Finance Act 2026 (s.39, Royal Assent 18 March 2026) amended s.162 so that for transfers on or after 6 April 2026 you must claim the relief on your Self Assessment return for the tax year of transfer, by the first anniversary of the 31 January following that year. A missed claim means the deferred gain becomes payable, so make the claim and keep clear evidence supporting it.
It is deferral, not exemption. The gain sits inside your share base cost and resurfaces if you later sell or wind up the company. And the relief turns on one condition above all: the letting must be a business, not passive investment. The benchmark case is Ramsay v HMRC [2013], where around 20 hours a week of active, hands-on management was accepted as business activity. A portfolio run entirely by a letting agent with little owner involvement is where HMRC pushes back. If you take advice on one thing only before incorporating, make it this. Our dedicated pages on incorporating without triggering CGT and on when HMRC accepts a rental business go deeper on the evidence HMRC looks for.
One related mechanism worth understanding: where the consideration is taken partly as a credit on your director's loan account rather than entirely as shares, that credit gives a tax-free route to draw money out of the company later. Used well it is powerful, but loading too much consideration into a loan rather than shares can restrict the very relief you are relying on, so it is a balance to strike with advice, not a default to apply.
Step 6: Deal with the stamp duty
Stamp duty is where incorporation differs sharply from the CGT position, and where the plan most often comes unstuck. There is no general SDLT incorporation relief for an ordinary individual landlord. A transfer to a company you control is charged to SDLT on the full market value, including the 5% additional-dwellings surcharge on residential property in England and Northern Ireland. In Scotland the equivalent is LBTT plus the 8% Additional Dwelling Supplement; in Wales it is LTT at the higher residential rates. This charge is payable in cash even though no property has been sold to an outside buyer, so it must be budgeted from the outset.
The one genuine route to reduce it is the partnership path under FA 2003 Schedule 15. Where a real, pre-existing letting partnership transfers its portfolio to a connected company, the sum-of-lower-proportions calculation can cut the chargeable consideration, potentially to nil. The conditions are strict: the partnership must already exist with substance (filed partnership tax returns under SA800, partnership accounts, joint borrowing), because HMRC's standard challenge is that a "partnership" created shortly before incorporation is a contrivance to be ignored under the s.75A anti-avoidance rule. The working safe harbour is at least two years of genuine partnership operation before the transfer, and a three-year anti-withdrawal rule then bites if capital is taken back out too soon. This is specialist territory, set out fully in our guide to partnership SDLT relief under Schedule 15.
How the two transfer taxes compare
| Tax on transfer | Default position | The relief, and its condition |
|---|---|---|
| Capital gains tax (individual) | 18% / 24% on the gain at market value, after GBP3,000 AEA | Section 162 defers it, where the letting is a genuine business transferred for shares |
| SDLT / LBTT / LTT (company) | Charged on full market value, plus the additional-dwellings surcharge | FA 2003 Sch 15 can reduce it, only via a genuine, pre-existing letting partnership |
Step 7: Run the company and get MTD-ready
A company carries more compliance than personal ownership. It must file annual accounts at Companies House, submit a Corporation Tax return to HMRC, file a yearly confirmation statement, and keep its statutory registers up to date. Profits are taxed at 19% up to GBP50,000, 25% above GBP250,000, and an effective 26.5% on the band between because of marginal relief. A standard company letting to unconnected tenants keeps the 19% small profits rate thanks to the qualifying-purpose carve-out in CTA 2010 s.18N; only a company letting solely to connected parties risks being treated as a close investment-holding company and taxed at 25% throughout.
Making Tax Digital is, helpfully, simpler for a company than for an individual. MTD for Income Tax is now live and applies to individuals, phasing in by gross income: from 6 April 2026 above GBP50,000, from 6 April 2027 above GBP30,000, and from 6 April 2028 above GBP20,000. A company is outside that regime entirely, so once your rental income sits inside the company the personal MTD obligation on that income falls away. You still need good digital bookkeeping for the company accounts, but you swap quarterly personal updates for the company filing cycle. If you are weighing the timing of all this against the MTD deadlines, see when to incorporate your property portfolio.
Common mistakes that turn a good plan into an expensive one
Three errors account for most incorporations that go wrong. The first is treating Section 162 relief as automatic: it is not, and for transfers on or after 6 April 2026 you must claim it on your Self Assessment return, on top of checking the business test, or a passive portfolio that does not qualify (or a qualifying one where the claim is missed) leaves the full CGT due. The second is forgetting that SDLT has no equivalent relief, so a transfer that is CGT-neutral still generates a real cash bill on the way in. The third is starting the legal work before lending is agreed, because a company mortgage refusal can halt a half-completed transfer and leave properties in limbo.
Two more catch people later. Cherry-picking which properties to move breaks the "whole business" requirement for Section 162 and multiplies the SDLT charges. And underestimating the extraction cost, the second layer of dividend tax, leads landlords to incorporate for a corporation tax saving they then hand straight back when they draw the money out. None of these is a reason not to incorporate. They are reasons to model the full picture and sequence the steps properly before you start.