Could transferring property to a limited company be a smart tax move?

With tax rules becoming more challenging for landlords, many are considering whether to move their rental properties into a company.  

While there are potential tax advantages, the process is not without its costs. Below, we weigh up the pros and cons to help you decide. 

The potential tax benefits 

It is important to consider why so many landlords opt for company ownership.  

The potential tax savings make it an attractive option for those looking to maximise their investment returns.  

Here is what makes the company route appealing: 

• Lower tax on rental income – Individuals pay Income Tax on rental profits at rates up to 45 per cent, whereas companies pay Corporation Tax at 19-25 per cent. 

• Full mortgage interest relief – Companies can deduct mortgage interest as an expense, unlike individual landlords, who are limited to a 20 per cent tax credit. 

• Retaining profits for reinvestment – A company structure allows landlords to reinvest profits without triggering personal tax liabilities. 

• Inheritance Tax (IHT) advantages – Holding property within a company can provide flexibility in estate planning, making it easier to pass on assets. 

These benefits can add up, particularly for landlords with larger portfolios or those looking to grow their investments over time.  

However, tax savings should always be considered alongside the potential costs. 

The potential tax costs 

While the benefits can be appealing, transferring property to a company is not a tax-free process.  

Before making a move, landlords must account for the immediate and ongoing costs involved. Here are the main tax considerations: 

Stamp Duty Land Tax (SDLT) – Moving a property into a company triggers SDLT, including the five per cent surcharge on second homes. With SDLT thresholds set to revert in April 2025, the cost could rise. 

Capital Gains Tax (CGT) – If the property has gained value, you may owe CGT on the transfer. With the annual exemption reduced to just £3,000, more of the gain is taxable. 

Extracting profits – Lower Corporation Tax rates can be appealing, but withdrawing money through dividends or salary attracts additional tax charges. 

These costs can majorly impact the financial viability of transferring property to a company.  

If the upfront tax burden is too high, the long-term benefits may not be worth the switch. 

Key tax changes on the horizon 

Upcoming changes to tax legislation could influence whether transferring property to a company remains beneficial.  

Landlords should be aware of the following developments: 

• SDLT rates will increase in April 2025, raising costs for landlords transferring properties. 

• The non-dom tax regime is being abolished, affecting overseas investors using company structures. 

• Further changes to property taxation may follow, with potential restrictions on corporate landlords. 

Keeping up with tax changes is crucial when making long-term investment decisions. What makes sense today may not be the best strategy in a few years, so ongoing tax planning is important. 

Who benefits most from a company structure? 

Not all landlords will gain equally from switching to a company structure. Those who are likely to benefit the most typically fall into these categories: 

• Higher-rate taxpayers – The lower Corporation Tax rate is particularly attractive if you’re in the 40 or 45 per cent tax bracket. 

• Portfolio landlords – If you plan to expand your property holdings, a company can be a tax-efficient way to reinvest profits. 

• Investors focused on long-term growth – Retaining profits within a company allows for reinvestment without immediate tax consequences. 

If your investment strategy aligns with these factors, a company structure could be a smart financial move.  

However, if you rely on rental income for day-to-day living, the tax implications may not be as favourable. 

Who might be better off staying as an individual? 

For some landlords, the complications and tax costs of company ownership outweigh the benefits: 

• Small-scale landlords – If you own just one or two properties and rely on rental income, the upfront tax costs may outweigh the benefits. 

• Those needing personal access to rental income – Extracting profits from a company can reduce the tax advantages. 

If you fall into these categories, staying as an individual landlord may be the simplest and most cost-effective approach.  

However, as tax rules change, it is worth reviewing your position regularly. 

If you are considering moving a rental property into a limited company and need help assessing your options, speak to our team for expert advice.