With rising mortgage costs and changing tax rules, more landlords are considering whether running their property business through a limited company makes financial sense.
For some, especially those affected by the end of the furnished holiday lettings tax regime, incorporation could offer significant savings. But as with most decisions in property tax, it depends on the bigger picture.
Here’s a closer look at the pros and cons of incorporating your property business—and what you should weigh up before making the switch.
Why Are Landlords Considering Incorporation?
The two biggest draws of incorporating are lower tax rates and more generous treatment of finance costs.
Corporation tax on profits is currently charged at rates up to 25%, which is still well below the top rate of personal income tax at 45%. For many landlords, this creates a noticeable gap in the amount of tax paid on the same profit.
On top of that, companies can still deduct interest and finance costs in full—something that individual landlords can no longer do on residential properties due to the interest restriction rules.
This makes incorporation particularly attractive for holiday let landlords who are losing access to the previous tax reliefs and may now face restricted interest deductions.
Other Potential Tax Benefits
When it comes to selling a property, companies pay corporation tax on capital gains. The effective rate is often lower than the capital gains tax (CGT) rate of 24% applied to residential property sales by higher-rate taxpayers.
And while CGT on residential properties must be paid within 60 days of sale, companies benefit from a longer payment window under the corporation tax regime.
There’s also the matter of limited liability. As a separate legal entity, a company offers protection that individual landlords don’t have, which can give peace of mind when things go wrong.
The Downsides of Incorporating
Despite the potential benefits, transferring your property business into a company can be expensive.
You may need to pay Stamp Duty Land Tax (SDLT) again when transferring properties, and you could face a capital gain—calculated using market value—when disposing of your property to the company. While incorporation relief can defer the gain by rolling it into the cost of the new shares, this is not always tax-neutral.
Companies don’t get a personal allowance or CGT annual exemption, so tax applies from the first pound of profit or gain.
And importantly, extracting profits from the company for personal use can trigger additional tax or National Insurance. Whether you take a salary, dividend, or loan, you’ll likely pay more tax on top of the corporation tax already paid by the company.
There are also extra admin and compliance costs when running a company, from Companies House filings to corporation tax returns. These can add to your workload and your accountant’s bill.
So, Is It Worth It?
Incorporating can save you money—but only if the numbers stack up.
It’s important to consider not just the tax payable by the company, but also the tax implications of drawing money out for personal use. For some landlords, the combined tax bill can be higher than expected.
The best course of action? Do the sums. Every landlord’s situation is different, and the right decision depends on your properties, income, future plans, and long-term goals.
Thinking About Incorporating Your Property Business?
If you’re considering incorporation, don’t go it alone. At Jon Davies Accountants, we’ll help you crunch the numbers, weigh up your options, and make the decision that works best for your property business.
Get in touch with our team today to find out whether going limited could be the right move for you.
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