Section 24 quietly reshaped landlord economics. Since it took full effect in 2020/21, individual landlords no longer deduct mortgage interest from rental income before tax. Instead they pay tax on the rent and receive a flat basic-rate credit on their finance costs. For a higher-rate taxpayer with a geared portfolio, that single change can turn a comfortable yield into a thin one, and it is what sends so many landlords to ask whether a limited company would be better.
Incorporation does fix the interest problem outright, because companies are not caught by Section 24 at all. But moving an existing portfolio into a company is not free or instant. It can trigger capital gains tax, stamp duty and a full refinancing exercise. The honest answer to "which saves more tax" is that it depends on three things: your marginal rate, how leveraged you are, and what you intend to do with the profits. This guide works through the comparison properly so you can see where the line actually falls.
How Section 24 hits individual landlords
Section 24 (ITTOIA 2005 s.272A, phased in from 2017/18 and fully in force since 2020/21) stops individual landlords deducting residential mortgage interest and other finance costs from rental profit. Instead, you calculate tax on the full profit and then deduct a tax reducer worth 20% of your finance costs.
For a basic-rate taxpayer that is broadly neutral, because the relief rate matches the tax rate. For a higher or additional-rate taxpayer it is not, because the relief is given at 20% while the rent is taxed at 40% or 45%. The result is an effective extra cost of 20p (higher rate) or 25p (additional rate) on every pound of mortgage interest. There is also a sting many landlords miss: because the full rent counts as income before the reducer, it can push you into a higher tax band, restrict your personal allowance, or trigger the High Income Child Benefit Charge even when your real economic profit has barely moved.
The reducer itself is capped at the lowest of three figures: your finance costs, your rental profits, or your adjusted total income above the personal allowance. If you make a rental loss, part of the relief is carried forward rather than given now. Our step-by-step guide to the Section 24 tax credit walks through the exact mechanics, and the Section 24 calculator lets you see your own figure.
A worked Section 24 example
Take a landlord with £50,000 of rental income, £30,000 of mortgage interest, and £10,000 of other employment income that already uses up the basic-rate band, so all rental profit is taxed at 40%.
- Under the old rules: profit of £20,000 (£50,000 less £30,000 interest), taxed at 40%, gives a tax bill of £8,000.
- Under Section 24: the full £50,000 is taxable. Tax at 40% is £20,000, less a 20% reducer on the £30,000 interest (£6,000), leaving a net bill of £14,000.
Same rent, same mortgage, same economic position, but £6,000 more tax. That gap is the engine behind every incorporation enquiry, and it grows with both leverage and marginal rate.
Why a company sidesteps Section 24 entirely
A limited company is not an individual, so Section 24 does not apply to it. The company deducts its full mortgage interest as a finance cost before working out its taxable profit, exactly as businesses always have. The corporate interest restriction rules exist, but they only bite on groups with very large net interest, far above anything a normal landlord runs into. For practical purposes, incorporation restores full interest relief.
Corporation tax for 2026/27 is charged as follows:
| Company profit | Corporation tax position 2026/27 |
|---|---|
| Up to £50,000 | 19% small profits rate |
| £50,000 to £250,000 | Marginal relief, effective rate around 26.5% on the slice in this band |
| Above £250,000 | 25% main rate |
Note one trap: if your company is a close investment-holding company under CTA 2010 s.18N, it loses the small profits rate and pays 25% throughout. Most genuine buy-to-let companies letting to unconnected tenants fall within the qualifying-purpose carve-out and keep the 19% rate, but this needs checking on the facts, not assuming. Our complete guide to buy-to-let limited companies covers the company set-up and running costs in detail.
The same example, run through a company
Using the figures above (£50,000 rent, £30,000 interest), the company has a taxable profit of £20,000. Corporation tax at 19% is £3,800. If those profits are left inside the company to reinvest, that is the whole tax bill, against £14,000 for the individual. The difference is stark on paper. The catch, covered below, is what happens when you want that money in your own pocket.
Section 24 versus incorporation: side by side
Before the worked figures, it helps to see the two routes compared on the dimensions that actually drive the decision.
| Factor | Individual (Section 24 applies) | Limited company (Section 24 does not apply) |
|---|---|---|
| Mortgage interest relief | 20% tax reducer only (22% from April 2027) | Full deduction against profit |
| Tax on retained profit | 20% / 40% / 45% (22% / 42% / 47% from April 2027) | 19% to 25% corporation tax |
| Tax to extract profit | None, you already own it | Dividend tax on top (10.75% / 35.75% / 39.35%) |
| Cost to set up on existing portfolio | None | Potential CGT, SDLT/LTT/LBTT, refinancing |
| CGT on later sale | 18% / 24% personal rates | Corporation tax on the gain, then extraction tax |
| Mortgage market | Wide, generally cheaper | Narrower, usually higher rates, directors' guarantees |
| Ongoing admin | Self Assessment plus MTD for Income Tax | Companies House accounts, CT600, confirmation statement |
| Best suited to | Lower leverage, basic-rate, income needed now | Higher-rate, geared, profits reinvested, long hold |
The decision hinges on what you do with the profit
The single most common mistake is comparing corporation tax against income tax and stopping there. That comparison flatters the company route, because money inside a company is not yet money in your hand. To spend it you must extract it, and extraction is taxed again.
Drawing profits as dividends in 2026/27 attracts dividend tax above the £500 allowance at 10.75% (basic), 35.75% (higher) and 39.35% (additional). So a higher-rate landlord who incorporates and then immediately pulls all the profit out pays 19% corporation tax and then 35.75% on what is left, a combined effective rate of roughly 48% that can edge slightly above the personal higher-rate income tax position once you net it all off. Drawing money through an overdrawn director's loan account does not escape this either, because an unpaid loan triggers a s.455 charge at 35.75%.
Where the company genuinely wins is when you leave the profit inside it. Retained at 19% (or up to 25%), reinvested into deposits on further properties or used to pay down debt, that profit compounds on a far larger base than it would after personal tax. This is why incorporation suits accumulators building a portfolio, and suits income-takers far less. Be honest with yourself about which you are before you move anything. Our guide to extracting money from a property limited company sets out the realistic routes.
Worked comparisons on retained profit
The examples below assume a higher or additional-rate individual and a company that retains its profit to reinvest, which is the scenario where incorporation is most favourable. They ignore one-off transfer costs, which are dealt with separately, and they are illustrations of the mechanics rather than advice on your own numbers.
Modestly geared higher-rate landlord
Rental income £40,000, mortgage interest £12,000, other deductible costs £4,000. The landlord is already a higher-rate taxpayer.
- Individual: profit before interest is £36,000 (£40,000 less £4,000). Tax at 40% is £14,400, less a 20% reducer on £12,000 interest (£2,400), giving a net bill of £12,000.
- Company: taxable profit is £24,000 (£40,000 less £12,000 less £4,000). Corporation tax at 19% is £4,560, left inside the company.
On retained profit the company saves a meaningful amount each year. But the saving here is modest enough that transfer costs on an existing portfolio could take many years to recover, which is exactly why low-gearing portfolios often stay personal.
Highly geared additional-rate landlord
Rental income £120,000, mortgage interest £72,000, other deductible costs £12,000. The landlord is an additional-rate taxpayer.
- Individual: taxable rent is £108,000 (£120,000 less £12,000). Tax at 45% is £48,600, less a 20% reducer on £72,000 interest (£14,400), giving a net bill of £34,200.
- Company: taxable profit is £36,000 (£120,000 less £72,000 less £12,000). Corporation tax at 19% is £6,840, retained.
Here the gap is large, because high leverage plus a high marginal rate is precisely where Section 24 does its worst damage and where full corporate interest relief delivers the most. This is the classic incorporation candidate. Even so, the larger the latent gain on the properties, the larger the CGT bill on transfer, so the upfront cost has to be modelled before the annual saving means anything.
The costs of getting into a company
This is where incorporation enquiries most often come undone. Moving an existing portfolio is a series of taxable events, not an administrative reclassification.
Capital gains tax on transfer
Selling or gifting a property to your own company is a disposal at market value under TCGA 1992 s.17, because you and the company are connected. Any gain since you bought it is chargeable at 18% (within the basic-rate band) or 24% (above it), after the annual exempt amount, which is just £3,000 for 2026/27.
Section 162 incorporation relief can defer that gain by rolling it into the base cost of the shares you receive, but only where you transfer a genuine business. HMRC scrutinises this closely: a property letting operation must show real business activity, typically a portfolio under active, time-committed management, not one or two passively held flats. The Ramsay case is the reference point, and the relief is denied more often than landlords expect. There is also holdover relief in narrower circumstances. Treat the CGT position as the make-or-break item, and see how to incorporate without a CGT charge for the conditions that have to be met.
Stamp duty on transfer
The transfer is also chargeable to SDLT in England and Northern Ireland (LTT in Wales, LBTT in Scotland) on the market value, including the 5% additional-dwellings surcharge for residential property. SDLT partnership relief under FA 2003 Sch 15 can reduce or remove this where the portfolio was genuinely run as a partnership beforehand, but it is technical, evidence-hungry, and frequently claimed incorrectly. The devolved positions differ: Wales and Scotland have their own additional-dwelling supplements and their own relief mechanics, so a portfolio spread across borders needs the rules applied jurisdiction by jurisdiction.
Refinancing and practicalities
Personal buy-to-let mortgages do not transfer to a company; you refinance into company lending. Limited-company mortgage rates are generally higher, loan-to-value limits tighter, and lenders almost always require personal guarantees from the directors, which dilutes the limited-liability comfort people imagine they are buying. Factor in arrangement fees, valuations and legal work. None of this is a reason not to incorporate, but all of it belongs in the model before you decide.
Capital gains tax when you eventually sell
The comparison does not end at the front door. When you sell, an individual pays CGT at 18% or 24% on the gain above the £3,000 exemption. A company pays corporation tax on its chargeable gain (19% to 25%) with no annual exemption, and you then face extraction tax to get the proceeds out. For a buy-and-hold investor who reinvests, the company route can defer and compound; for someone planning to sell up and bank the cash, the double layer of corporate plus extraction tax can make personal ownership cleaner. Match the structure to the exit you actually intend.
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Making Tax Digital changes the individual side too
Making Tax Digital for Income Tax is now live. From 6 April 2026 it applies to individual landlords (and sole traders) with qualifying gross income above £50,000, dropping to £30,000 from 6 April 2027 and £20,000 from 6 April 2028. In scope you keep digital records and file quarterly updates rather than one annual return. Companies are outside MTD for Income Tax; they have always filed a corporation tax return instead.
This is not, on its own, a reason to incorporate, but it does narrow the admin gap that used to make personal ownership feel simpler. If you are going to carry quarterly digital filing as an individual anyway, the incremental compliance of a company looks less daunting than it once did. Our note on the MTD qualifying income test explains how the threshold is measured against gross, not net, rental income, which catches more landlords than expected.
What April 2027 does to the maths
From 6 April 2027, Finance Act 2026 (Royal Assent 18 March 2026) introduces separate property income tax rates of 22% basic, 42% higher and 47% additional. These apply in England, Wales and Northern Ireland; only Scotland is carved out, with Scottish taxpayers continuing on Holyrood-set rates for their property income. These are enacted law, not a proposal.
The point that defeats most commentary is the reducer. Finance Act 2026 raises the Section 24 finance-cost reducer from 20% to 22% in step with the new basic rate, so a basic-rate landlord sees no new wedge, and a higher-rate landlord's relief improves from 20% to 22%. The finance-cost wedge for a higher-rate landlord moves from 20 points (40 less 20) to 20 points (42 less 22): unchanged, not widened. What does shift slightly is the comparison against the corporate route, because the headline 2 point rise on rental income lifts the individual's overall bill a little while corporation tax is unchanged. The net effect is a modest nudge further toward incorporation for higher-rate, geared landlords, not a step change. Our guide to the 2027 property income tax rates sets out the detail.
When each route wins
Stripping away the noise, the pattern is consistent. Incorporation tends to win where:
- you are a higher or additional-rate taxpayer;
- mortgage interest is a large share of your rent, so Section 24 bites hard;
- you intend to retain and reinvest profits rather than draw them;
- you are buying new properties, so there is little or no latent gain to crystallise;
- you are thinking about long-term succession and want to pass value down through shares.
Personal ownership tends to win where:
- you are a basic-rate taxpayer, where Section 24 is broadly neutral;
- gearing is low, so there is little interest to restrict;
- you rely on the rental income to live on and would extract it all anyway;
- your properties carry a large latent gain, so transfer CGT would dwarf the annual saving;
- you expect to sell within a few years.
For many landlords the real answer is neither one nor the other but a deliberate split: keep the long-held, low-mortgage stock personal, and acquire new, geared property through a company from day one to avoid every transfer cost. When to incorporate and limited company versus personal ownership go deeper on getting the timing and structure right.
How to decide on your own numbers
The figures in this guide are illustrations of the mechanics. The decision that matters is the one run on your own portfolio, with your real marginal rate, your actual finance costs, the latent gain on each property, and the transfer costs to get into a company. A saving that looks transformative on retained profit can evaporate once you net off CGT and SDLT on an appreciated portfolio, just as it can be compelling on a freshly bought, highly geared one.
Model your specific position before committing, or speak to a specialist who can look at the whole picture: income tax exposure now, transfer costs to incorporate, the extraction plan, and your eventual exit. That full-picture analysis is what separates a sound structure from an expensive mistake, and it is exactly the conversation worth having before you move a single property.