The structure you use to hold your first rental property determines your tax position for every year you own it, and changing it later costs Stamp Duty Land Tax at full market value under FA 2003 s.53 plus Capital Gains Tax on any gain. On a single £400,000 property with a £100,000 gain, transferring from personal name into a limited company costs approximately £30,000 in SDLT and £23,280 in CGT: a total restructuring bill of over £53,000 that could be zero with the right structure before purchase. For a higher-rate taxpayer with £12,000 of annual mortgage interest, personal ownership costs £2,400 a year more in unrelieved Section 24 tax than a company holding the same property. From 6 April 2027, FA 2026 ss.6-7 raises personal property income rates to 22/42/47% in England, Wales and Northern Ireland; the corporation tax rate stays at 19% on profits up to £50,000. Getting this right before you buy costs nothing.
The structure you use to hold your first rental property is one of the most consequential decisions you will make as a property investor. Unlike many other tax decisions, it cannot be reversed cheaply: moving an existing personally-owned property into a limited company triggers Stamp Duty Land Tax at full market value and a Capital Gains Tax disposal. On a single £400,000 property, the correction can cost £50,000 or more. Getting it right before you buy costs nothing.
This guide gives a three-way pre-purchase comparison: personal ownership (the default for most first-time landlords), limited company (either a special-purpose vehicle SPV or a trading property company), and partnership (either a general partnership or a limited liability partnership). Each structure has a different interaction with Section 24, a different tax rate on profits, and a different level of compliance overhead. The right choice depends on your tax position now, how many properties you plan to hold, and whether income splitting with a spouse or partner is part of your planning.
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The three structures at a glance
| Factor | Personal ownership | Limited company | Partnership / LLP |
|---|---|---|---|
| Tax on profits | Income tax at 20%/40%/45% (2026/27); 22%/42%/47% (2027/28, England, Wales, NI) | Corporation tax at 19% (small profits, up to £50k), 25% (main rate, above £250k), 26.5% marginal (£50k-£250k) | Income tax at each partner's marginal rate on their profit share |
| Section 24 mortgage interest restriction | Yes. Interest blocked from deduction; 20% credit (2026/27), 22% credit (2027/28) | No. Full interest deduction as a business expense before CT | Yes, applying to each partner individually on their share |
| Income splitting | No (sole ownership) or via joint tenancy with fixed 50/50 split | Via dividend policy and share class design; more flexible but requires shareholder planning | Yes, by agreement between partners within genuine entitlement limits |
| Liability protection | Personal liability for property obligations | Limited to share capital and any personal guarantees | General partnership: unlimited personal liability. LLP: limited |
| Compliance overhead | Self assessment SA105 rental pages only | Annual accounts, CT600, Companies House confirmation statement; payroll if director's salary used | Partnership self assessment SA800 + each partner's individual return |
| Mortgage market access | Full residential and BTL mortgage range; lower rates typically | Limited company BTL mortgages; typically 0.5-1% higher rates, fewer lenders | Similar to personal; depends on lender appetite for partnership borrowing |
| Cost of restructuring later | High: SDLT at market value (FA 2003 s.53) plus CGT on any gain | Zero at outset if structured correctly before first purchase | Zero at outset; Schedule 15 partnership SDLT relief available if genuine pre-existing partnership |
Personal ownership: the Section 24 wedge
When you hold rental property in your own name, your profit is taxed as property income under ITTOIA 2005 Part 3. The Section 24 finance-cost restriction (ITTOIA 2005 / ITA 2007) is the defining constraint for personally-owned leveraged property.
Under Section 24, you cannot deduct mortgage interest and finance costs from rental income to arrive at taxable profit. Instead, you pay income tax on the full rental income and then receive a basic-rate credit (20% of finance costs in 2026/27; 22% from 6 April 2027 under FA 2026, enacted 18 March 2026, HP §7). For a basic-rate taxpayer, the credit roughly offsets the tax cost of not deducting the interest. For a higher-rate taxpayer, the difference is irrecoverable.
Worked example: the higher-rate wedge (2026/27)
Rental income: £24,000. Mortgage interest: £12,000. Landlord's only income.
| Scenario | Income tax on rental income | Section 24 credit | Net tax | Cash left after mortgage and tax |
|---|---|---|---|---|
| Higher-rate taxpayer (40%) | 40% x £24,000 = £9,600 | 20% x £12,000 = £2,400 | £7,200 | £24,000 - £12,000 - £7,200 = £4,800 |
| Basic-rate taxpayer (20%) | 20% x £24,000 = £4,800 | 20% x £12,000 = £2,400 | £2,400 | £24,000 - £12,000 - £2,400 = £9,600 |
At higher rate, the landlord pays £7,200 tax on £12,000 of net profit (60% effective rate on actual profit). This is the Section 24 problem: a landlord with a mortgaged property generating £12,000 net profit pays tax as if that profit were £24,000.
The 2027/28 position (FA 2026, enacted 18 March 2026)
From 6 April 2027, property income is taxed at 22% (basic), 42% (higher), 47% (additional) in England, Wales and Northern Ireland. The Section 24 reducer also rises to 22%. For basic-rate landlords, the reducer matches the rate: no new structural disadvantage. For higher-rate landlords, the wedge remains at 20 percentage points (42% minus 22%), the same as in 2026/27. The argument for a company structure does not weaken from 2027/28.
Limited company: the corporation tax advantage
A limited company holding residential property is subject to corporation tax (CT) on its profits, not income tax. The critical difference: the company deducts mortgage interest and finance costs as a normal business expense before CT is calculated. Section 24 does not apply to companies.
CT rates for 2026/27 (verified at legislation.gov.uk): 19% small profits rate (profits up to £50,000); 25% main rate (profits above £250,000); 26.5% marginal rate (profits between £50,000 and £250,000).
Company vs personal: worked comparison at two rent levels
Assumptions: single landlord, no other income, all profits extracted as dividends (above £500 dividend allowance), basic-rate band for dividend purposes.
| Scenario | Personal ownership (higher rate, s.24) | Limited company (small profits rate + dividend extraction) |
|---|---|---|
| £24k rent / £12k interest | Tax: £7,200 (see above). Cash after mortgage and tax: £4,800 | CT on £12k profit: 19% = £2,280. Post-CT retained: £9,720. Dividend tax (10.75% above £500 allowance on £9,220): £991. Total tax: £3,271. Cash after mortgage and tax: £8,729 |
| £48k rent / £24k interest | Tax: 40% x £48k = £19,200 minus credit 20% x £24k = £4,800 = net £14,400. Cash after mortgage and tax: £9,600 | CT on £24k profit: 19% = £4,560. Post-CT retained: £19,440. Dividend tax (10.75% on £18,940): £2,036. Total tax: £6,596. Cash after mortgage and tax: £17,404 |
At both rent levels, the combined CT and dividend tax in a company is substantially lower than personal higher-rate tax with Section 24. The advantage grows with scale because the Section 24 wedge is proportional to finance costs.
For detail on extracting profits from a BTL limited company through salary, dividends and loan accounts, see the buy-to-let limited company complete guide.
Practical friction costs of the company route
The company advantage is real but not free. Friction costs to account for:
- Annual accountancy (company accounts + CT600): typically £800 to £2,000 per year
- Companies House confirmation statement: £13 per year
- Limited company BTL mortgage rate premium: typically 0.5 to 1 percentage point above equivalent personal-name products; fewer lenders offer them
- Director's salary PAYE setup if the director takes a salary (usually small: £9,100 or similar)
- Dividend extraction tax in 2026/27: 10.75% / 35.75% (FA 2026 s.4) / 39.35% (unchanged, FA 2022)
- Annual Tax on Enveloped Dwellings (ATED): applies to companies holding residential property valued above £500,000. The 2026/27 charge for a property in the £500,001 to £1m band is £4,600 per year. Most BTL companies let to unconnected tenants and can claim property rental business relief, reducing the charge to nil, but a Relief Declaration Return must still be filed annually via HMRC's ATED online service. For company properties above £500,000, budget for this compliance step regardless of whether tax is payable.
The higher mortgage rate premium matters most for highly leveraged portfolios. At 0.5% on £200,000 of borrowing, this is £1,000 per year additional interest cost, which roughly offsets one year of CT saving on modest-profit properties. Run the full numbers before assuming the company wins automatically.
Partnership: income splitting without the company layer
A partnership (either a general partnership under Partnership Act 1890 s.1, or an LLP under the Limited Liability Partnerships Act 2000) is transparent for income tax. Each partner is taxed on their share of the partnership's property income at their individual marginal rate. ITTOIA 2005 Part 9 (ss.846-863) governs the income treatment.
The income-splitting benefit
If one spouse is a higher-rate taxpayer and the other is a basic-rate taxpayer, a 50/50 partnership shifts half of the rental income from the 40% band to the 20% band. Section 24 still applies to each partner individually, but the effective wedge for the basic-rate partner is eliminated (the reducer matches their rate), leaving only the higher-rate partner with an irrecoverable wedge on their half of the finance costs.
Worked example: higher-rate / basic-rate partnership (2026/27)
Same property: £24,000 rent, £12,000 mortgage interest, 50/50 split.
| Partner | Income share | Tax | Section 24 credit | Net tax |
|---|---|---|---|---|
| Higher-rate spouse (40%) | £12,000 | 40% x £12,000 = £4,800 | 20% x £6,000 = £1,200 | £3,600 |
| Basic-rate spouse (20%) | £12,000 | 20% x £12,000 = £2,400 | 20% x £6,000 = £1,200 | £1,200 |
| Combined | £24,000 | £4,800 (vs £7,200 in personal ownership by HR landlord alone) |
The partnership saves £2,400 per year versus the higher-rate landlord holding in their own name alone, without the compliance overhead of a limited company. The saving is real income splitting, not a Section 24 bypass.
Partnership architecture and the HP §11.C framework
HMRC requires that partnership income sharing genuinely reflects the partners' economic entitlement (PIM1030). The income-sharing ratio must match the property's beneficial ownership, or be supported by a partnership deed recording agreed profit-sharing terms that reflect the partners' actual contributions and economic rights. A deed allocating 90% of income to the lower-rate partner with the higher-rate partner contributing 90% of the capital will attract scrutiny unless the arrangement is commercially defensible.
Key distinction for property investors: a general partnership between spouses holding residential property is not the same as a family investment company (FIC) with differentiated share classes. The partnership has no separate legal personality; property ownership at Land Registry will show both names. For liability and structure purposes this is usually fine for a spouse partnership, but the absence of limited liability in a general partnership (unlike an LLP) is worth noting if the partnership expands beyond two named individuals.
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The SDLT and CGT cost of getting it wrong
The pre-purchase decision matters because restructuring after purchase is expensive. FA 2003 s.53 provides that a transfer to a connected company is treated as made at market value for SDLT purposes, regardless of the actual consideration paid. SDLT is then charged at standard residential rates on that market value.
Worked example: incorporating a single personally-owned property
Property: market value £400,000. Outstanding mortgage: £300,000. Connected SPV limited company with no prior property holdings.
SDLT on market value £400,000 (England, 2026/27 rates including 5% additional dwellings surcharge):
| Band | Rate (standard + 5% surcharge) | SDLT |
|---|---|---|
| £0 to £125,000 | 0% + 5% = 5% | £6,250 |
| £125,001 to £250,000 | 2% + 5% = 7% | £8,750 |
| £250,001 to £400,000 | 5% + 5% = 10% | £15,000 |
| Total SDLT | £30,000 |
CGT on disposal: the transfer is a deemed disposal at market value. If the original purchase price was £300,000, the gain is £100,000. After the £3,000 annual exempt amount, CGT at 24% (residential property rate, verify at write time) on £97,000 = approximately £23,280.
Total restructuring cost on one £400,000 property: approximately £53,000. This does not include legal fees or mortgage early repayment charges.
TCGA 1992 s.162 incorporation relief: contested territory
Section 162 TCGA 1992 can defer the CGT if the transfer qualifies as a "business as a going concern" with the whole assets of the business (or all assets other than cash) transferred wholly or partly in exchange for shares. The statute does not explicitly require a trading business; it uses "business as a going concern" without formal definition.
However, HMRC contests whether a residential letting business qualifies under s.162. In Ramsay [2013] UKUT 226, the Upper Tribunal found that a letting business could qualify as a "business" for s.162 purposes, but the level of personal activity was a material factual indicator. The tribunal's analysis pointed to something in the order of 20 hours per week of personal management activity as the kind of involvement that might move a letting business from passive investment to qualifying business under the provision. This is not a statutory threshold and the position remains fact-sensitive and contested.
The practical conclusion: do not plan your structure on the assumption that s.162 will be available. Get specialist advice before relying on incorporation relief for a letting portfolio. The SDLT cost (FA 2003 s.53) cannot be deferred under s.162 in any event; only the CGT element is potentially deferrable.
Practical non-tax factors
The tax comparison is central, but two non-tax factors regularly determine the outcome for new investors:
Mortgage market access. The personal BTL mortgage market is larger, more competitive, and generally offers lower rates than the limited company BTL mortgage market. Many high-street lenders do not offer limited company BTL products at all; those that do typically price at 0.5 to 1 percentage point above their personal-name equivalent. For a highly leveraged investor, this rate premium can partially or wholly offset the CT saving. Consult a specialist BTL mortgage broker who covers both personal and company products before making the structure decision.
Mortgage portability. If you already have a residential or BTL mortgage in personal name and plan to add properties, a company structure means new lending in the company's name (no personal mortgage history for the company, which may affect terms). Conversely, if you plan to use the company's retained profits to fund deposits on further properties, the company structure avoids personal income tax on those retained funds, which is a compounding advantage over a long hold.
Which structure wins at different scales?
| Investor profile | Likely best structure | Key reason |
|---|---|---|
| 1 property, basic-rate taxpayer | Personal ownership | Section 24 wedge is minimal; company compliance cost exceeds saving |
| 1 property, higher-rate taxpayer, no lower-rate spouse | Limited company (if planning to grow) or personal (if long-term hold only) | Section 24 wedge real but company mortgage premium may offset; depends on borrowing level |
| 1-2 properties, higher-rate taxpayer + basic-rate spouse | Partnership (general or LLP) | Income splitting saves Section 24 wedge on half the finance costs; lower compliance cost than company |
| 3-5 properties, higher-rate taxpayer | Limited company (SPV) | CT rate (19%) versus personal 40-42%; Section 24 bypass; retained-profit reinvestment advantage |
| 10+ properties, portfolio landlord | Limited company (potentially group structure) | CT rate, Section 24 bypass, profit reinvestment, estate planning flexibility; see portfolio landlord tax planning strategy guide |
These are indicative starting points, not rules. The right answer for your situation depends on the level of borrowing, your marginal rate both now and when you retire, the number of properties you plan to hold, and whether you have a spouse or civil partner who is a lower-rate taxpayer.
How this page differs from the sole-trader-vs-partnership guide
Our sole-trader-vs-partnership guide covers the two-way comparison in depth: conversion mechanics from sole trader to partnership, the mechanics of a formal partnership deed, the salaried member rules for LLPs, and the income-splitting limit principles. This page is the pre-purchase three-way decision guide that adds the limited company as the third option and focuses on the Section 24 wedge as the tax-driver of the choice. If you are deciding between personal ownership and partnership only (no company in scope), start there. If you are deciding which of all three structures fits before your first purchase, this is the right page.