2. Full deduction of interest and finance costs

For a company holding property, interest and finance charges are deductible in full.

The interest-rate restriction that applies to residential properties let by individuals (unincorporated landlords) does not apply in the same way for property companies.

For holiday-let landlords who will now be subject to the interest restriction under personal ownership, incorporation may be an attractive route to preserve interest deduction.

3. Capital gains and disposal planning

Companies pay corporation tax on chargeable gains.

If the effective corporation tax rate is less than the equivalent higher-rate individual CGT rate (24% for residential property disposals), then incorporation can lead to a lower tax bill on disposal of the property.

Also, companies generally benefit from longer payment windows for corporation tax on gains, giving more planning flexibility.

4. Limited liability and ownership structure

Incorporating the property business puts it into a separate legal entity (a limited company) with limited liability for shareholders, which can be another compelling non-tax reason to adopt the corporate structure.

Disadvantages of Incorporating Property Business

1. Transfer costs and SDLT implications

If you are transferring properties from personal name into the company, you will incur stamp duty land tax (SDLT) again and may trigger a disposal (and gain) at market value under the connected-persons rule.

Incorporation relief for transfers may roll over the gain, but the base cost of the shares will be reduced accordingly, so future taxation may be higher.

2. No personal allowance or CGT annual exempt amount for the company

Unlike individuals, a company does not have a personal allowance or an annual exempt amount for capital gains purposes, so tax is payable from the first £1 of profit or gain.

3. Extraction of profits attracts further tax/National Insurance

If shareholders want to use company profits for personal benefit, the route of extraction (dividends, salary, loans) may attract additional tax or National Insurance liabilities.

Hence, you must consider not just the company tax but how you will extract the funds.

4. Increased compliance and administrative burden

Running a company involves additional compliance obligations (annual accounts, corporation tax returns, company secretarial duties) and costs, which add to the administrative burden.

5. New tax changes to consider

For the 2025/26 tax year there are specific changes you must factor in:

• The favourable FHL regime for individuals has been abolished from April 2025 — FHL properties now fall under standard UK and overseas property business rules.

• The stamp duty nil-rate band for most purchases returns to £125,000 from 1 April 2025, increasing SDLT cost on transfers of properties into companies.

• Mortgage interest relief for unincorporated landlords remains restricted (basic rate tax credit) whereas inside a company full interest deduction remains — this discrepancy is a key reason for incorporating.

• The rollout of Making Tax Digital (MTD) for property income: landlords with qualifying income may need to start digital reporting from 6 April 2027; companies already use digital filing for corporation tax.

Because of these shifts, the decision to incorporate your property business is not simply about tax rates — it must consider cost, timing, personal extraction strategies, financing, and long-term flexibility.

How Trueman Brown Can Help You With Incorporating Property Business

If you are exploring incorporating property business, the team at Trueman Brown are well placed to assist you in assessing whether incorporation is the right move and managing the implementation process.

We can help with:

• Analysing your current portfolio and projecting the tax impact of incorporation versus remaining unincorporated

• Guiding on the transfer of properties into the company, stamp duty and gain relief implications

• Structuring how the company should extract profits and advising on shareholder drawings or dividends

• Ensuring ongoing compliance, company accounts, corporation tax returns, and reporting obligations

• Coordinating with your mortgage/finance advisers to understand interest deduction benefits

Contact us at mark@truemanbrown.co.uk or call 01708 397262 to arrange a review of your property business incorporation strategy.

Frequently Asked Questions About Incorporating Property Business (FAQ)

Q1: When is the best time to incorporate my property business?
A1: There is no one-size-fits-all timing. Key considerations include when your profits are expected to grow, when you plan to sell properties (to capture gain relief), the interest cost of transferring properties, and the administrative cost of forming a company. Incorporation soon after acquisition may minimise duplicated SDLT and ease financing.

Q2: What happens to pre-existing loans when the property business is incorporated?
A2: If the property is transferred into a company, the loan may need to be reviewed (sometimes a “clean” loan to the company). The interest is still deductible inside the company, but refinancing may be necessary and stamp duty may apply on the legal charge. It’s vital to engage finance and tax advisers together.

Q3: Does incorporating property business mean I will avoid higher rate tax entirely?
A3: Not necessarily. While the company pays corporation tax, if you extract profits personally (via dividends, salary, loan), you may incur personal tax or National Insurance. So the extraction route must be part of the calculation.

Q4: Are there drawbacks if I plan to hold the properties long-term?
A4: Yes — holding properties within a company limits the ability to use individual allowances (personal allowance, CGT annual exempt amount) and may reduce flexibility (for example, moving properties to children or future pension planning). Also consider that closing the company and extracting assets later may trigger tax or SDLT.

Q5: Do the 2025/26 changes for FHLs affect the decision to incorporate?
A5: Yes — the abolition of the FHL regime for individuals means holiday lets will now be treated like standard property business income, with less favourable reliefs. This change has made incorporation more attractive for some holiday-let landlords, because companies still get full interest deductions.

Q6: What about future tax changes — could they affect my incorporated property business?
A6: Yes — while the current corporation tax and property tax rules are known, reforms (for example to CGT, IHT, stamp duty, or interest deductible rules) could affect future returns. A company structure gives you flexibility and time-value for tax planning, but you should keep under review.