The tax environment for residential property investors is set to tighten again over the next few years and landlords are once again being forced to reconsider how their portfolios are structured.
For many buy-to-let investors, particularly those with larger or heavily mortgaged portfolios, these changes could significantly increase their overall tax burden.
As a result, landlords are once again asking themselves whether holding property personally remains the most efficient way to operate their property businesses.
The key driver behind this renewed focus is a combination of higher income tax rates and the continued restriction on mortgage interest relief.
Higher tax rates on rental income
From April 2027, the income tax rates applying to rental income are due to increase by two percentage points, as follows:
These increases will affect landlords who hold property in their personal name.
Properties held through companies will not be subject to these changes as profits from those properties will remain within the corporation tax regime, and will be taxed at either 19% or 25% depending on the level of profits.
Of course, mortgage interest relief for individual landlords is also restricted. This means tax is effectively calculated before interest is deducted, which can leave some landlords paying tax on profits they have not actually received.
In fact, the upside of the changes (such as it is) is that from 2027 landlords will receive a tax credit equal to 22% of their finance costs rather than the 20% they receive currently.
A simple example
So, what does this actually look like in practice?
Consider a landlord with a £900,000 portfolio generating £48,000 of annual rental profits and £16,000 of mortgage interest.
Under personal ownership, the taxable profit would remain £48,000. At a 42% tax rate, the income tax liability would be £20,160. After applying the 22% tax credit on the mortgage interest (£3,520), the tax payable would be £16,640.
After interest and tax, the landlord would retain approximately £15,360.
Under company ownership, the mortgage interest is fully deductible. The taxable profit becomes £32,000 and corporation tax at 19% would be £6,080, leaving £25,920 retained in the company.
If those profits are reinvested, the tax difference can be significant. However, once profits are extracted personally through dividends or salary, a second layer of tax will apply.
Corporate ownership
Corporate ownership has become part of the conversation for landlords since 2017 because companies benefit from:
However, this is where the analysis becomes more complex.
However, incorporation is rarely straightforward and can involve significant upfront tax costs.
For capital gains tax purposes, transferring property to a company is treated as a disposal at market value, meaning capital gains tax could arise on broadly the difference between the market value of the properties and the purchase price at a rate of up to 24% even where no consideration is paid for the properties.
Stamp duty land tax (SDLT) can also apply to the company acquiring the property, and this would, of course, be at the higher residential rates. While reliefs from CGT and SDLT may be available where the portfolio qualifies as a genuine property business, these rules are complex and eligibility is limited.
Planning for landlords who own their properties personally
For those who decide not to incorporate, this does not mean there are no planning opportunities available.
Incorporation is certainly not suitable for everyone, and for many landlords continuing to hold property personally may still be the right answer.
In these cases, basic tax planning like ensuring income is split between spouses can still be an effective.
Where beneficial ownership differs from legal ownership, the income split may also be adjusted using a declaration of trust and Form 17.
Capital gains tax planning can also help reduce tax on future property disposals. Strategies may include staggering sales across multiple tax years or transferring part ownership to a spouse to utilise two CGT allowances, given that transfers between spouses can take place on a no gain, no loss basis.
A good time to review the position
With tax changes in April 2027 now is a sensible time for landlords to review how their portfolios are currently held.
For investors focused on long-term growth and reinvesting profits, corporate ownership can often provide advantages.
For those relying on rental income personally or planning to sell properties in the near future, the analysis is often more nuanced and, in some cases, may point away from incorporation altogether.
What is clear is that how landlords hold property is no longer a passive decision. Landlords should review their cashflow, understand potential restructuring costs and consider their long-term plans before making any changes.
So, should landlords still be thinking about incorporation? In many cases, yes, particularly where portfolios are leveraged and profits are being reinvested rather than drawn personally.
However, incorporation is not a default solution, and for some landlords the upfront tax costs and extraction issues will outweigh the ongoing benefits. The real question is not whether incorporation is “good” or “bad”, but whether it aligns with the landlord’s long-term strategy.
We regularly advise landlords and property investors on tax-efficient structuring, incorporation, and long-term succession planning. If you would like to discuss how these changes could affect your property business, please get in touch.
