The fundamental question is whether the ongoing tax saving from operating through a company exceeds the one-off transaction costs of transferring the portfolio. This is a complex calculation that depends on: the size of the mortgage relative to the portfolio value (high LTV portfolios benefit most from avoiding Section 24); the landlord's income tax rate (higher-rate and additional-rate taxpayers benefit most); the number and value of properties (more properties = higher absolute SDLT and legal costs); and the landlord's long-term plans for the portfolio (intention to hold long-term through a company maximises the benefit of corporate tax rates and flexible profit extraction).
A critical legal issue that frequently catches landlords out is the availability of incorporation relief under TCGA 1992 s.162. This relief allows a business to be transferred to a company in exchange for shares, with any capital gain 'rolled over' into the shares rather than crystallised immediately. However, HMRC's longstanding position — partially supported by case law — is that a passive property letting portfolio is not a 'business' for s.162 purposes, because it is primarily an investment activity. The 2013 case of Ramsay v HMRC provided some hope that actively managed lettings could qualify, but the position remains uncertain and contested. Any landlord considering this route must obtain specialist advice.
SDLT, CGT, incorporation relief and the Section 24 tax saving calculation
The key tax and legal considerations for transferring a BTL portfolio to a limited company:
- SDLT on transfer to a limited company (England): Transfer of property to a connected company (FA 2003 s.53): when a landlord transfers property to a limited company that they control (a 'connected' company under the Corporation Tax Act 2010 s.1122), SDLT is charged on the higher of the actual consideration and the open market value of the property — even if no money actually changes hands. This means: even if the landlord contributes the property in exchange for shares only (no cash payment), SDLT is calculated on the full market value. The 3% additional dwelling surcharge (SDLT surcharge for additional residential properties) also applies to every property transferred. Example: a property with market value £300,000 would attract SDLT of approximately £14,000 (standard SDLT bands) + £9,000 (3% surcharge) = approximately £23,000 in SDLT per property. Multiple Dwellings Relief (MDR): this relief, which previously allowed a landlord to average the SDLT across multiple properties transferred in a single transaction (potentially reducing the overall SDLT rate), was ABOLISHED for transactions completing on or after 1 June 2024 (FA 2024 s.11). It is no longer available. Partnership route (FA 2003 Schedule 15): some tax advisers previously used the 'property investment partnership' route — establishing a partnership before incorporating, which attracted different SDLT treatment under Schedule 15. HMRC has challenged these schemes and the route is now very restricted for residential properties. Specialist tax advice is required before attempting any SDLT planning around partnership incorporation.
- CGT on transfer, incorporation relief (s.162 TCGA) and mortgage complications: CGT on disposal: a transfer of property to a connected company is treated as a disposal at market value for CGT purposes (TCGA 1992 s.18), regardless of the actual consideration received. If the property has increased in value since acquisition, CGT is payable on the gain. CGT rates for residential property: 18% (basic rate) or 24% (higher/additional rate) — applicable from 6 April 2024 (FA 2024). Incorporation Relief (TCGA 1992 s.162): this relief allows CGT to be deferred (rolled over) when a business is transferred to a company in exchange for shares. The gain is 'rolled into' the base cost of the shares rather than being crystallised. However, there is a critical condition: the transfer must be of a 'business'. HMRC's established position is that a passive property letting portfolio is an investment, not a business, for s.162 purposes — incorporation relief is therefore NOT available. The 2013 Upper Tribunal decision in Ramsay v HMRC UKUT 0226 (TCC) found that a property letting business involving active landlord management (conducting viewings; handling maintenance; managing multiple tenancies personally) could qualify as a 'business' under s.162. However, this decision is fact-specific; a passive portfolio managed through a letting agent is unlikely to qualify. Specialist advice and HMRC clearance should be sought before relying on s.162. Mortgage complications: most personal BTL mortgages contain a clause preventing transfer of the mortgaged property to a company without the lender's consent. Lenders almost never give consent to 'port' a personal BTL mortgage to a company borrower — the usual outcome is that the personal BTL mortgage must be repaid in full and a new company BTL mortgage obtained. Company BTL mortgages typically have: higher interest rates (0.25-1.5% above equivalent personal BTL rates); more restrictive lending criteria; requirement for a personal guarantee from the director/shareholder; minimum property and rental yield requirements. Scotland: Land and Buildings Transaction Tax (LBTT) is charged on company purchases in Scotland; the Additional Dwelling Supplement (ADS) at 6% (from April 2024) applies to companies acquiring residential property. There is no equivalent of SDLT s.53 market value rule in LBTT — but the connected persons rules still apply to market value. Wales: Land Transaction Tax (LTT) applies; Higher Residential Rates (HRR) apply to company purchases of residential property; rates mirror the England/Wales SDLT higher rates band structure but with Welsh Government rate-setting
Frequently asked questions
Does Section 24 apply to a limited company that owns rental properties?+
No — the Section 24 finance cost restriction (Income Tax Act 2007 s.272A, introduced by Finance Act 2015) applies only to individual landlords, not to limited companies. A limited company that owns rental properties can deduct the full amount of mortgage interest and other finance costs from rental income before calculating its taxable profits. This is the primary tax-saving driver for higher-rate taxpayer landlords considering incorporation. Corporation tax rates are also lower than higher-rate income tax — 19% for small company profits under £50,000; 25% for profits over £250,000.
Will I get incorporation relief (CGT deferral) when I transfer my BTL portfolio to a company?+
This is uncertain and depends heavily on the facts. Incorporation relief under TCGA 1992 s.162 defers CGT on the transfer of a 'business' to a company in exchange for shares. HMRC's position is that a passive property letting portfolio is an investment, not a business — incorporation relief is not available. The 2013 decision in Ramsay v HMRC held that actively managed lettings could qualify, but this is fact-specific. Landlords with large portfolios who actively manage their properties personally (rather than entirely through a letting agent) are in a stronger position to claim s.162, but specialist tax advice and HMRC clearance should be obtained before proceeding.
How much SDLT do I pay when transferring my buy-to-let properties to a company?+
SDLT is calculated on the market value of each property transferred (FA 2003 s.53), not just the consideration actually paid. The 3% additional dwelling surcharge also applies to each property. For a property worth £300,000, this typically results in approximately £23,000 in SDLT per property. Multiple Dwellings Relief was abolished from 1 June 2024 and is no longer available to reduce SDLT on portfolio transfers. Scotland charges LBTT plus the Additional Dwelling Supplement (ADS) at 6%; Wales charges Land Transaction Tax at higher residential rates.
What happens to my buy-to-let mortgage when I transfer the property to a limited company?+
Most BTL mortgage contracts prohibit transfer of the mortgaged property to a company without the lender's consent — lenders almost never consent to transferring a personal BTL mortgage to a company. In practice, the personal BTL mortgage must be repaid on transfer, and the company must then obtain a separate company BTL mortgage. Company BTL mortgages typically carry higher interest rates, require a personal guarantee from the director, and have stricter lending criteria. Mortgage refinancing costs — arrangement fees, valuation fees, early repayment charges on the personal mortgage — add significantly to the total transaction cost of incorporation.
- Section 24 mortgage interest restriction — impact and mitigation →
- Limited company buy-to-let — setting up and running a property company →
- Incorporation relief — TCGA 1992 s.162 for business transfers →
- Capital gains tax on rental property — rates and calculation →
- SDLT 3% surcharge — additional dwelling stamp duty →
- Corporation tax for property companies — rates and deductions →