A limited company can deduct mortgage interest in full, unlike an individual landlord subject to Section 24. This tax advantage makes incorporation appealing for higher-rate taxpayers with mortgaged portfolios. However, the costs of transferring existing properties into a company are substantial, and the benefits must significantly outweigh them over a realistic timeframe.
The key tax difference: mortgage interest
The primary advantage of a limited company is that it can deduct mortgage interest as a business expense, reducing its Corporation Tax bill. An individual landlord subject to Section 24 receives only a 20% tax credit. For a higher-rate taxpayer with significant mortgage costs, this difference can amount to thousands of pounds per year.
Corporation Tax rates 2025/26
| Company profit level | Corporation Tax rate |
|---|---|
| Up to £50,000 | 19% (small profits rate) |
| £50,001 to £250,000 | Marginal relief (graduated between 19% and 25%) |
| Above £250,000 | 25% (main rate) |
Compare this to the 40% or 45% Income Tax a higher-rate individual landlord pays on rental profits. The Corporation Tax saving on retained profits can be significant for portfolio landlords.
The costs of transferring existing properties
If you already own properties personally and want to move them into a company, the transfer is treated as a sale at market value. This triggers:
- Capital Gains Tax: On any gain since purchase (less annual CGT allowance and available reliefs)
- Stamp Duty Land Tax: On the market value of properties transferred, including the 5% additional dwellings surcharge
- Mortgage issues: Lenders typically do not allow a mortgage to transfer to a company; you may need to refinance at commercial rates
- Legal fees: Conveyancing costs for each property transferred
When incorporation typically does make sense
- You are building a portfolio from scratch and have not yet purchased properties personally
- You are a higher-rate taxpayer with significant mortgage costs and the Section 24 restriction is causing real pain
- You plan to retain most profits in the company rather than draw them out
- A professional analysis (using your actual CGT gain and current property values) shows the payback period is acceptable (typically 5 to 10 years)
When it does not make sense
- You have large capital gains on existing properties (transfer costs would be prohibitive)
- You plan to draw most of the rental income immediately (dividend tax erodes the Corporation Tax saving)
- Your portfolio is small (below 3 to 4 properties) and the admin overhead is not justified
- You are a basic-rate taxpayer (Section 24 barely affects you)
There is no universal answer. The right decision depends entirely on your individual tax position, portfolio size, mortgage levels, and plans for the income. Always commission a professional financial model before making this decision.
This guide is for general information only. Property taxation is complex and frequently changes. Always consult a qualified tax adviser or accountant before making decisions. Find one via our accountant directory.