Should You Incorporate Your Property Portfolio? A Landlord’s Guide to Making the Right Move
Incorporation has become a hot topic among landlords in recent years, particularly as tax changes and regulatory pressures continue to reshape the buy to let landscape. But is transferring your property portfolio into a Limited Company the right move for you?
As with most things in property investment, the answer is: it depends.
What Does Incorporation Actually Mean?
At its core, Incorporation is the one-time process of transferring ownership of your personally held rental properties into a Limited Company. In return, you receive shares in that company. This shift can unlock access to lower Corporation Tax rates and potentially offer long-term planning advantages.
But while the headlines may sound appealing, the reality is more nuanced.
The Potential Benefits
For some landlords, particularly those with larger portfolios or long-term investment strategies, Incorporation can offer meaningful advantages:
Tax Efficiency: Corporation Tax rates (currently between 19% and 25%) are often lower than higher-rate personal Income Tax bands.
Incorporation Relief: If you're actively managing your portfolio (typically 20+ hours per week), you may qualify for Incorporation Relief, which can defer Capital Gains Tax (CGT) on the transfer.
Estate Planning: Holding property in a company structure can offer more flexible options for succession planning and inheritance.
The Risks and Realities
Despite the potential upsides, Incorporation isn't a one-size-fits-all solution. In fact, for many landlords, the costs and complexities may outweigh the benefits:
Double Taxation: While Corporation Tax may be lower, extracting profits via dividends or salary can trigger additional personal tax liabilities.
Stamp Duty Land Tax (SDLT): Unless you meet specific partnership criteria, SDLT is payable on the full market value of the properties being transferred.
Refinancing Requirements: Most lenders require new Limited Company mortgages, which may come with higher rates or fees.
Strict HMRC Criteria: To qualify for tax reliefs, you must demonstrate that your property activity constitutes a genuine business. This includes keeping detailed records of your time and involvement.
Common Missteps
Some landlords have been drawn into schemes that promise tax savings without fully understanding the legal and financial implications. HMRC has recently scrutinised arrangements involving inflated director's loans or questionable trust deeds, leading to unexpected tax bills and legal challenges.
The lesson? Always seek tax advice from a qualified tax professional, and property finance advice from a broker with a deep understanding of the process.
So, is Incorporation Right for You?
There's no universal answer. Incorporation can be a powerful tool for landlords with the right profile, typically those with 5 or more properties, a hands-on management style, and long-term growth ambitions.
But for others, simpler strategies may be more effective. These might include:
- Purchasing future properties through a limited company
- Adjusting ownership shares between spouses or partners
- Exploring tax-efficient mortgage structures
Incorporation is a strategic decision, not a quick fix. It requires careful planning, professional guidance, and a clear understanding of your long-term goals.
At MFB, we've supported thousands of landlords through this process, helping them weigh the pros and cons and make informed decisions that align with their portfolio ambitions.
Useful Resources
For more information on the process of Incorporation, MFB's webinar 'BTL Incorporation & Landlord Tax: Your Questions Answered', is available to watch, FREE, on demand. It brings together experts to help you understand the Incorporation process and how it could boost your property portfolio. Watch it here >>