Another year, another hit on landlords. From April 2027, the tax rate on residential rental income is going up by 2% for individual landlords. Limited companies? Unaffected.
So naturally, the question a lot of people are asking is: should I incorporate my property portfolio to avoid this?
The honest answer: it depends. Landlords incorporating isn’t a magic bullet – and for many, it might create more problems than it solves. Let’s break it down.
What does the 2% increase actually cost you?
Let’s look at some real numbers. Assume a portfolio of five properties, each worth £250,000, with interest-only mortgages of £180,000 each. Gross rent of £1,200 per month, mortgage payments of £675 per month.
Scenario 1: Landlord with no other income The extra 2% costs roughly £379 per year. Tax bill goes from £3,104 to £3,483.
Scenario 2: Landlord also earning £50,000 from employment The extra 2% costs £630 per year. Tax bill goes from £20,126 to £20,756.
Scenario 3: Landlord also earning £125,000 Still only £630 extra per year.
Not earth-shattering, right? And a limited company with the same portfolio would pay around £5,985 in corporation tax – potentially saving higher-rate taxpayers significant amounts. But here’s the thing: getting those properties into a company is where it gets complicated.
The problems with landlords incorporating
There’s no free lunch here. If you’re considering landlords incorporating as a tax strategy, you need to factor in:
Stamp Duty Land Tax (SDLT) – Unless you qualify for incorporation relief, transferring properties into a company triggers SDLT. On a £1.25m portfolio, that’s a big hit.
Capital Gains Tax (CGT) – You’re technically “selling” the properties to your company. That could mean a significant CGT bill unless you qualify for relief.
Higher mortgage rates – Business mortgages typically cost more than residential ones. Plus, you might face early repayment charges on existing fixed-rate deals.
Running costs – A limited company means accounts, corporation tax returns, and ongoing admin. It’s not complicated, but it’s not free either.
When might landlords incorporating make sense?
It’s worth exploring if:
- You’re highly geared (lots of mortgage debt relative to property value)
- Your rental income alone pushes you into additional-rate tax
- You want to retain profits in the company and draw them later (say, in retirement when your tax rate might be lower)
- You’re thinking long-term about inheritance tax and succession planning
For landlords with volume portfolios, high-value properties, or HMOs, the numbers can start to work. But for most landlords with fewer than five properties? The upfront costs probably outweigh the savings.
The bigger picture
The 2% increase isn’t happening in isolation. Landlords have faced a relentless stream of changes in recent years:
- Mortgage interest relief restricted to a 20% credit (22% from April 2027)
- Higher mortgage rates since 2022
- MTD for Income Tax bringing quarterly reporting from April 2026
- The furnished holiday let scheme abolished in April 2025
- New Renters’ Rights Bill reforms from 2026
Any one of these is manageable. Together, they’re squeezing margins and increasing admin. The 2% tax rise is annoying, but it’s probably not the thing that tips the scales on its own.
So what should you do?
Don’t rush into incorporation because of a headline. Look at your actual numbers. Consider your long-term plans. And get proper advice before making any big decisions.
| Wondering whether incorporating is right for your portfolio? Get in touch – we can run the numbers and help you decide. |
