UK Landlord LTD vs Personal Ownership (2026/27)
UK landlord LTD vs personal ownership 2026/27: Section 24 mortgage interest restriction in personal vs full CT deductibility in Ltd, SDLT on incorporation 3% surcharge + 15% NRSDLT, Section 162 incorporation relief on goodwill, BADR 18% on Ltd exit, decision matrix by portfolio size + tax band.
Personal vs Ltd ownership comparison
| Factor | Personal ownership | Limited company |
|---|---|---|
| Mortgage interest deduction | 20% basic-rate credit ONLY (Section 24) | 100% deductible against rental profits |
| Marginal tax rate | 20% / 40% / 45% IT + Class 4 NI 6%/2% if trading | 19% CT (small profits) / 25% (main) / marginal relief £50k-£250k |
| Stamp Duty Land Tax (SDLT) on purchase | Standard residential + 5% second-home surcharge | Same + 15% NRSDLT for non-natural persons >£500k |
| SDLT on incorporation | (initial purchase only) | TRIGGERED on transfer to Ltd - typically 3-5% surcharge applies |
| CGT on sale | 18% / 24% (2026/27 reduced rates), £3k AEA | No CGT in company; profits taxed via CT; CGT only on disposal of shares (BADR 18% if qualifying) |
| Dividend extraction | N/A (rental income directly) | 0% (within personal allowance) / 10.75% / 35.75% / 39.35% on dividends above £500 allowance (2026/27 post Autumn Budget 2025) |
| Annual admin costs | ~£300-£800 (SA + accountant) | ~£1,500-£3,500 (SA + Ltd accounts + Companies House filings) |
| Pension contribution | Personal contributions only (capped by relevant earnings) | Company can contribute - tax-deductible employer pension contribution, no NI on employer contribution |
Related guides
- UK Section 24 Mortgage Interest 2026/27 - detailed worked examples.
- UK Landlord Rental Income Tax 2026/27 - rental tax fundamentals.
- UK Limited Company MVL Closure 2026/27 - exit mechanics.
- UK Property Income 2027 Reform - separate rates from 2027.
- UK Sole Trader vs Limited Guide - parallel decision for non-property.
Frequently asked questions
What's Section 24 + why does it matter?
Section 24 Finance (No.2) Act 2015 restricted UK landlords' tax relief on mortgage interest from 100% deduction to a 20% basic-rate credit. Effect: a higher-rate (40%) landlord with £20k rental + £15k mortgage interest used to pay tax on £5k profit (~£2k); now pays tax on FULL £20k rental income with only £3k credit (20% × £15k), so taxed on £20k at 40% minus £3k credit = £5k tax. Same cash flow, dramatically higher tax bill. Section 24 doesn't apply to: (a) limited companies (full deduction allowed), (b) commercial / furnished holiday let properties (FHL relief mostly abolished April 2025 - check timing), (c) basic-rate taxpayers (no real benefit lost). Section 24 has been the primary driver of landlord incorporation since 2017.
When does incorporation make sense?
Rough decision framework: Definitely consider: (a) 4+ properties OR portfolio income >£50k, (b) higher-rate taxpayer being hit hard by Section 24, (c) plan to BUILD portfolio rather than sell, (d) want flexibility for family income split via shareholdings, (e) want to retain profits for reinvestment (rather than living off rental income). Probably don't bother: (a) 1-2 properties, (b) basic-rate taxpayer (Section 24 doesn't hurt as much), (c) plan to sell within 5 years (incorporation costs + CGT later), (d) properties producing low net margins (admin costs eat the saving), (e) properties with low mortgages (Section 24 doesn't bite much).
What's the cost of incorporating?
Major one-off costs: (a) SDLT on transfer to Ltd - the Ltd is technically buying from you at market value. Standard residential SDLT + 5% second-home surcharge applies. £400k property = £24k SDLT + 15% NRSDLT if applies. (b) Mortgage rearrangement - lenders need to re-underwrite for Ltd ownership. Buy-to-let Ltd rates typically 0.5-1.5% higher than personal BTL. Refinancing costs £500-£2k per property. (c) Capital Gains Tax on transferring properties from personal to Ltd - they're disposals at market value. Section 162 incorporation relief can DEFER CGT if you transfer the whole business + all assets in exchange for shares. Conditions: must be a "business" (not investment), all assets transferred, consideration entirely in shares. Major hurdle: HMRC has tightened "business" definition for property; need active management evidence.
What's Section 162 Incorporation Relief?
Section 162 TCGA 1992. Defers CGT on transfer of an UNINCORPORATED BUSINESS to a limited company. Gain is "rolled into" the share base cost - so no CGT now, but lower base for future share disposal. Conditions: (a) "Going concern" - must be transfer of a business, not just isolated properties, (b) All assets transferred to Ltd (with possible exclusion for cash), (c) Consideration entirely in shares (any cash element creates partial CGT trigger). The "business" test is critical + has tightened: HMRC accepts portfolios where landlord actively manages (decisions on tenants, repairs, maintenance, full-time activity). Passive holdings managed by agents may NOT qualify. Get specialist advice for incorporation relief claims.
How does Ltd ownership compare on profitability?
Worked example - higher-rate landlord with £100k rental + £70k mortgage interest: Personal: rental £100k, IT 40% on £100k = £40k tax, minus £14k credit (20% × £70k) = £26k tax. Net £4k income (£100k - £70k - £26k). Ltd: rental £100k, CT 19/25% on £30k profit (£100k - £70k interest deductible) = ~£5.7k. Net £24.3k retained in company - £20k+ MORE than personal route. Even after extracting via dividends (10.75% basic, 35.75% higher in 2026/27), Ltd typically ahead at higher-rate levels. The exception: extracting full income as dividends pushes you into higher rates, offsetting CT saving. Best Ltd strategy: retain profits for reinvestment, extract slowly via dividends within basic-rate band.
What about MVL exit from a property Ltd?
Members' Voluntary Liquidation (MVL) - distribute company assets as capital to shareholders, taxed under CGT (rather than dividend Income Tax). Significant tax saving for exiting Ltd landlords. BADR (Business Asset Disposal Relief) 18% on first £1m lifetime gains - applies to qualifying companies + shareholders. Without BADR, standard CGT 18%/24% rates apply on share disposal. MVL costs: £1.5-£5k Insolvency Practitioner fee. Tax saving on £200k distribution: BADR (£36k tax) vs dividend at higher-rate (£67k tax) = £31k saved. Strategy popular among retiring property investors. Anti-phoenix rule (60-day TAAR) prevents starting similar company within 2 years; consider this when planning.
What about family income shifting?
Major Ltd advantage. Issue ALPHABET SHARES (different share classes) to spouse / partner / adult children. Dividends can be paid disproportionately to share class. Family member uses their own Personal Allowance + Dividend Allowance + basic-rate band. Saves tax materially if family member would otherwise have unused allowances. Example: husband higher-rate £80k salary; wife basic-rate £30k salary. Property Ltd dividends £30k paid as: husband £0 (already at higher rate) + wife £30k (uses unused basic-rate band - taxed at 10.75% = £3,225) vs all to husband 35.75% = £10,725. Save £7,500/year. Anti-avoidance: spouse must genuinely own shares (real consideration + actual receipt of dividends + control over share rights).
What's the FHL situation in 2026?
Furnished Holiday Lettings (FHL) rules were broadly ABOLISHED from April 2025. Previously, FHL gave landlords (with qualifying short-let furnished properties): (a) Full mortgage interest deduction (no Section 24 restriction), (b) Capital allowances on furniture + equipment, (c) BADR eligible on sale, (d) Pension contributions via FHL profits. Post-April 2025: FHL treated as standard rental property - Section 24 restriction, no capital allowances, no BADR. Major loss for short-let landlords (Airbnb, holiday cottages). Strategic responses: (a) Incorporate to escape Section 24 - if active business test met, (b) Transition to long-let if FHL no longer beneficial, (c) Sell while can still claim BADR if pre-April 2025 status preserved.