Should You Incorporate?
Limited company ownership
What is Incorporation?
Incorporation means transferring your rental properties into a limited company. The company owns the properties and pays Corporation Tax on profits rather than you paying Income Tax.
The Appeal
- Corporation Tax rates: 19-25% (depending on profits) compared to Income Tax rates of 20-45%
- Section 24 doesn't apply: Companies can still deduct mortgage interest as a business expense
- Profit retention: Profits can be retained in the company and reinvested without immediate personal tax
- Inheritance planning: Company shares may be easier to transfer than property
The Costs
However, incorporation triggers significant immediate costs:
- Stamp Duty Land Tax: The company purchases the property at market value, triggering SDLT at the additional property surcharge rate (3% extra) plus a further 2% surcharge for company purchases
- Capital Gains Tax: You dispose of the property at market value, triggering CGT on any gain since purchase
- Mortgage refinancing: Personal buy-to-let mortgages cannot be transferred; you'll need commercial company mortgages (often at higher interest rates)
- Ongoing costs: Annual accounts, Corporation Tax returns, higher accountancy fees
Not a DIY Decision
The decision to incorporate involves complex financial modelling, considering your personal circumstances, future plans, and the substantial costs of transfer. Seek advice from a specialist property accountant who can model the numbers for your specific situation.
Need Help With Incorporation?
Incorporation decisions are complex and the costs significant. This is not a DIY decision - we recommend specialist accountant advice before making any changes. Get in touch to learn more.