TCGA 1992 s162 provides that where a person transfers a business as a going concern to a company in exchange wholly or partly for shares, any gains on the assets transferred are automatically deferred (held over) and base-cost in the shares is reduced accordingly. The relief applies automatically — it does not need to be claimed — but can be disapplied by election.
The problem for most residential landlords is the word 'business'. HMRC has consistently taken the position that simple buy-to-let letting — receiving rent passively, carrying out basic maintenance, and renewing tenancies — does not constitute a business for s162 purposes. The courts have generally supported HMRC on this, meaning CGT cannot be deferred under s162 for passive portfolios.
How TCGA 1992 s162 incorporation relief works
The mechanics of the relief when it applies:
- s162 relief applies automatically to the transfer of a business as a going concern in exchange for shares — it is not elective, though it can be disapplied
- The relief defers CGT: the gains that would otherwise be chargeable on the disposal of each property are instead deducted from the base cost of the shares received
- On a later disposal of the shares, the deferred gains come back into charge (plus any further gain on the shares themselves)
- Relief is only available if the entire business (not cherry-picked properties) is transferred, and the consideration is wholly or partly shares — a cash element reduces the relief proportionally
- The relief covers all assets in the business, including goodwill (where applicable), equipment, and property
The business activity test — HMRC's challenge
Whether a property portfolio qualifies as a 'business' is the central dispute:
- HMRC's position: passive buy-to-let letting is investment activity, not a trade or business. HMRC does not accept s162 applies to portfolios that simply receive rent and carry out routine maintenance
- The courts have generally supported HMRC: in cases such as Ramsay v HMRC (2013) and Rignell v HMRC (2018), the First-tier Tribunal found that residential letting did not constitute a business for s162 purposes without significant additional activity
- Factors that increase the likelihood of meeting the business test: operating an HMO estate with significant day-to-day management activity; providing additional services (meals, linen, communal areas); employing staff; managing a significant number of properties with documented business-level systems
- Short-term let portfolios (e.g. furnished holiday lets) have stronger arguments for business status — HMRC is more likely to accept s162 where there is active management comparable to a trading enterprise
- The risk: if HMRC successfully challenges the s162 claim, CGT becomes due on all the gains on incorporation — potentially a very large bill, with interest and penalties if not paid on time
SDLT on incorporating a buy-to-let portfolio
SDLT is often the deal-breaker for incorporation, even where s162 CGT deferral is achievable:
- Transferring residential property to a connected company (one controlled by the individual transferor) triggers SDLT at market value — the company is treated as paying full market value SDLT even if the actual consideration is shares
- SDLT rates for residential property held in a company: the standard rates apply plus the 3% additional dwellings surcharge. For a portfolio of 10 properties at £200,000 average value (£2m total), SDLT could be well over £100,000
- Partnership incorporation: FA 2003 para 18 provides partial SDLT relief when a property partnership (including a general partnership between spouses) incorporates — the SDLT is charged only on the portion of shares not already owned by the transferring partners. This can substantially reduce SDLT for partnership incorporations
- No SDLT relief for sole trader to company transfers: there is no general SDLT relief equivalent to s162 CGT relief for sole trader incorporation of a residential property portfolio
- Mortgage issues: buy-to-let mortgages are personal to the individual borrower. The company cannot simply take over the mortgage — new commercial mortgages will be needed (typically at higher rates and with arrangement fees), and lender consent is required. The logistics and cost of remortgaging can make large-scale incorporation impractical
When incorporation can still make sense
Despite the challenges, incorporation can be the right choice for some landlords:
- New purchases only: buying future properties through a limited company sidesteps the CGT and SDLT incorporation costs. Section 24 (mortgage interest restriction) does not apply to companies, and Corporation Tax rates on retained profits are often lower than higher-rate income tax
- Fully unencumbered portfolios: if a portfolio has no buy-to-let mortgages, the remortgaging cost disappears. If the gains are also modest (low CGT), and s162 is not available, a staged transfer over several years using the annual CGT exemption may be viable
- HMO/professional landlord portfolios: where the scale and activity of the business genuinely supports a s162 claim, legal advice followed by HMRC advance clearance via HMRC's non-statutory clearance service gives the best certainty before proceeding
- Separation of new acquisitions from existing portfolio: a holding-company structure that keeps personal properties separate from company-owned new purchases offers flexibility without forcing an immediate incorporation transfer
- Family Investment Company (FIC) approach: instead of a s162 transfer, some landlords set up a FIC funded by a loan from the individual, with the company using the loan to purchase new properties — preserving flexibility without a potentially invalid CGT deferral claim
Frequently asked questions
Can I defer CGT when transferring my buy-to-let portfolio to a limited company?+
Only if the portfolio constitutes a 'business' within the meaning of TCGA 1992 s162. HMRC does not accept that standard passive buy-to-let letting — receiving rent and doing routine maintenance — meets this test. Courts have generally sided with HMRC. Incorporation relief is more likely to be available for active HMO operations, furnished holiday let portfolios, or portfolios involving significant additional management services. Seeking HMRC advance clearance before proceeding is strongly recommended.
Do I pay SDLT when transferring properties to my own limited company?+
Yes. Transfers of residential property to a connected company (including a company you control) are charged SDLT at market value, plus the 3% additional dwellings surcharge. There is no CGT-equivalent SDLT relief for this type of incorporation. The SDLT cost on a typical portfolio can run to tens or hundreds of thousands of pounds, making it the main financial obstacle to incorporation for mortgaged landlords.
What happens to my buy-to-let mortgage when I incorporate?+
Your existing buy-to-let mortgages are personal loans and cannot transfer to the company automatically. The company will need to take out new commercial or limited company buy-to-let mortgages to finance the properties — typically at higher rates, with arrangement fees, and subject to fresh underwriting. The lenders on your personal mortgages will also need to consent to the change or the mortgages will need to be redeemed. For large leveraged portfolios, the remortgaging cost and complexity often makes full incorporation financially unviable.
Should I put new buy-to-let purchases in a limited company?+
For higher-rate taxpayers who intend to retain profits rather than draw them immediately, a limited company is often more tax-efficient for new purchases: Section 24 does not apply, Corporation Tax on retained profits is lower than higher-rate income tax, and the company can accumulate equity more efficiently. The trade-off is higher mortgage rates on company buy-to-let products and additional administrative cost. For basic-rate taxpayers or those relying on rental income as regular income, the personal ownership route may remain preferable.