Section 24 mortgage interest restrictions have fundamentally changed the tax landscape for UK landlords. Since full implementation in 2020/21, many property investors face significantly higher tax bills. The question is: does incorporation into a company structure save more tax than staying as an individual landlord?

The answer depends on your specific circumstances, but the numbers often tell a clear story.

How Section 24 Impacts Individual Landlords

Section 24 restricts mortgage interest relief to basic rate (20%) for individual landlords, regardless of your actual tax rate. If you're a higher or additional rate taxpayer, this creates a significant tax penalty.

Here's how it works: instead of deducting full mortgage interest from rental income, you get a 20% tax credit on the interest paid. For higher rate taxpayers, this effectively removes 20% of mortgage interest relief.

Example: A landlord with £50,000 rental income and £30,000 mortgage interest, earning £60,000 from employment:

  • Pre-Section 24: Taxable rental profit = £20,000, taxed at 40% = £8,000
  • Post-Section 24: Full £50,000 rental income taxed at 40% = £20,000, minus £6,000 tax credit = £14,000 net tax
  • Additional tax burden: £6,000 per year

Company Structure Tax Benefits

Limited companies aren't subject to Section 24 restrictions. They can still deduct full mortgage interest against rental income before calculating corporation tax.

Corporation tax rates for 2025/26 are:

  • 19% on profits up to £50,000 (small profits rate)
  • Marginal relief between £50,000-£250,000
  • 25% on profits above £250,000

Using the same example above, a company would pay corporation tax on £20,000 profit (£50,000 income minus £30,000 interest) at 19% = £3,800. That's £10,200 less tax than the individual landlord under Section 24.

Real-World Comparison: Individual vs Company

Let's compare three common scenarios using current tax rates:

Scenario 1: Small Portfolio (£30,000 rental income)

Individual landlord:

  • Rental income: £30,000
  • Mortgage interest: £18,000
  • Other expenses: £3,000
  • Tax under Section 24: £4,200

Company structure:

  • Corporation tax on £9,000 profit: £1,710
  • Dividend tax on extraction: £675 (assuming basic rate)
  • Total tax: £2,385

Annual saving: £1,815

Scenario 2: Medium Portfolio (£75,000 rental income)

Individual landlord (higher rate taxpayer):

  • Rental income: £75,000
  • Mortgage interest: £45,000
  • Other expenses: £8,000
  • Tax under Section 24: £21,000

Company structure:

  • Corporation tax on £22,000 profit: £4,180
  • Dividend tax on extraction: £1,710
  • Total tax: £5,890

Annual saving: £15,110

Scenario 3: Large Portfolio (£150,000 rental income)

Individual landlord (additional rate taxpayer):

  • Rental income: £150,000
  • Mortgage interest: £90,000
  • Other expenses: £15,000
  • Tax under Section 24: £49,500

Company structure:

  • Corporation tax on £45,000 profit: £8,550
  • Dividend tax on extraction: £3,600
  • Total tax: £12,150

Annual saving: £37,350

When Incorporation Makes Most Sense

The tax benefits of incorporation are most pronounced when:

  • You're a higher or additional rate taxpayer
  • Your mortgage interest represents a significant portion of rental income
  • You don't need to extract all profits immediately
  • Your total rental income exceeds £50,000 annually

The higher your personal tax rate and the more leveraged your portfolio, the greater the potential savings from incorporation.

Hidden Costs and Considerations

While the tax savings can be substantial, incorporation isn't free:

Ongoing costs:

  • Annual accounts preparation: £500-£2,000
  • Corporation tax returns: £300-£800
  • Companies House filing fees: £13-£40
  • Additional administrative burden

Transfer considerations:

  • Stamp Duty Land Tax on property transfers
  • Potential Capital Gains Tax on incorporation
  • Legal and surveyor fees
  • Mortgage arrangement fees for refinancing

These one-off costs can be significant but are often justified by the annual tax savings, especially for larger portfolios.

Capital Gains Tax Implications

Companies pay corporation tax on capital gains at 19-25%, while individuals face CGT rates of 18% or 24% (2025/26 rates). For property investors focused on capital growth, this difference matters.

However, companies can more easily reinvest gains without immediate tax consequences, potentially accelerating portfolio growth.

Timing Your Decision

With Making Tax Digital for Income Tax Property starting in April 2026, individual landlords will face increased compliance burdens. This adds another factor favoring incorporation for larger portfolios.

If you're considering incorporation, acting before significant portfolio growth can minimize transfer costs and maximize long-term savings.

Getting Professional Advice

These calculations show the potential benefits, but your specific circumstances matter enormously. Factors like existing capital gains, mortgage arrangements, and future plans all influence the optimal structure.

Our calculators can provide initial estimates, but complex portfolios need detailed analysis. The potential savings often justify the cost of professional advice to get the structure right.

For most higher rate taxpayers with significant mortgage interest, incorporation delivers substantial tax savings. The question isn't whether it saves tax—it's whether the savings justify the additional complexity and costs.