Should I Incorporate My Buy-to-Let? The 2026 Numbers

• Small profits rate: 19% (profits of £50,000 or less)
• Main rate: 25% (profits above £250,000)
• Marginal relief taper applies between £50,000 and £250,000

Income Tax (2025/26 tax year):

• Basic rate: 20% (£12,571 to £50,270)
• Higher rate: 40% (£50,271 to £125,140)
• Additional rate: 45% (above £125,140)

Most small-portfolio landlords with a buy-to-let SPV will sit comfortably within the 19% small profits band. A property generating £6,500 net profit after all expenses and mortgage interest sits well below £50,000.

The comparison that matters most is not just the headline rates. It is the effective cost of mortgage interest under each structure. In personal name, a 40% taxpayer gets 20% relief on mortgage interest. In a company, they get full relief. At current BTL mortgage rates (averaging around 5% for a two-year fix), that difference on a £200,000 mortgage costs roughly £2,000 per year in extra personal tax.

That gap between personal and company tax treatment is the engine driving incorporation.

---

The Hidden Costs of Incorporating Existing Properties

Here is where it gets expensive, and why the decision is very different for a new purchase versus an existing portfolio.

When you transfer a property you already own into a limited company, two tax charges crystallise simultaneously.

SDLT on the transfer

A transfer to a connected limited company is treated as a sale at market value for SDLT purposes, regardless of what money actually changes hands. The company pays SDLT on that market value, at the standard residential rates plus the 5% additional dwelling surcharge that applies to companies (increased from 3% in October 2024).

Using GOV.UK's current rate bands for limited company purchases (post April 2025):

On a property worth £300,000:

• Up to £125,000: 5% = £6,250
• £125,001 to £250,000: 7% = £8,750
• £250,001 to £300,000: 10% = £5,000
• Total SDLT: £20,000

That is £20,000 just to transfer one property, before a single penny of the incorporation's tax benefits kicks in.

CGT on the transfer

The transfer also counts as a disposal for Capital Gains Tax. If the property has increased in value since you bought it, you will owe CGT on the gain above your annual CGT allowance (£3,000 for 2025/26).

Current CGT rates for residential property (from 30 October 2024, confirmed via GOV.UK):

• Basic rate taxpayer: 18%
• Higher rate / additional rate taxpayer: 24%

On a property bought for £180,000 and now worth £300,000, the gain is £120,000. After the £3,000 allowance, a higher-rate taxpayer pays 24% on £117,000: a CGT bill of £28,080.

Combined with the £20,000 SDLT, that is £48,080 in transfer costs before legal fees and accountant time (typically £1,500 to £3,000 for a straightforward incorporation). The tax saving from incorporating that property might be £3,000 per year. You would need 16 years just to break even on the transfer costs.

This is not a reason to never incorporate. It is a reason to think very carefully before incorporating existing properties, and to get specialist tax advice before taking any action.

---

When Incorporation Makes Clear Sense

The numbers favour incorporation most strongly in two scenarios.

Scenario 1: New purchases by higher-rate taxpayers

If you are a 40% or 45% taxpayer buying your next property and you plan to keep it for the long term, starting in a limited company avoids the problem entirely. There is no SDLT uplift (the company just pays its normal purchase SDLT), no CGT crystallisation, and you immediately benefit from full mortgage interest deductibility.

The ongoing tax saving for a 40% taxpayer on a property with a £150,000 interest-only mortgage at 5% is roughly £1,500 per year in reduced income tax alone, compared to personal ownership. The admin costs of running a limited company (annual accounts, confirmation statement, accountant fees) typically run to £500 to £1,000 per year for a simple SPV. The net tax saving after admin costs is real from year one.

Scenario 2: Portfolio builders planning to retain and reinvest profits

If your strategy is to grow a portfolio over time and reinvest profits rather than draw them as income, a company gives you more retained profit to work with. At 19% corporation tax, you keep 81p in every pound of profit inside the company. As a 40% income taxpayer drawing dividends, you would keep considerably less.

This retained profit compounds inside the company and can be used as deposits on further purchases, without triggering income tax at the point of reinvestment.

---

When Incorporation Is Harder to Justify

Basic-rate taxpayers with a small portfolio

If you are a basic-rate taxpayer and expect to remain one (taking into account that rental income grossed up for Section 24 purposes can push you into the higher rate), the tax saving from a company is much smaller. You get a 20% tax credit on mortgage interest under Section 24, which roughly matches the 20% basic rate. The admin overhead and higher mortgage rates may well outweigh the benefit.

Existing portfolios with substantial equity and gains

As shown in the transfer cost example above, the break-even point on incorporating an existing portfolio with embedded gains can be 10 to 20 years. For landlords closer to retirement, or thinking about selling within five years, incorporation of existing properties rarely makes financial sense without exceptional circumstances.

Landlords needing competitive mortgage rates

Limited company mortgages carry a rate premium over personal-name products. Based on current market data, that gap sits between 0.5% and 1.15% depending on the product and lender. On a £200,000 mortgage, a 1% rate gap costs £2,000 per year in extra interest. If you are a basic-rate taxpayer, that gap can swallow most or all of the tax saving.

The good news is that the rate gap has been closing as more specialist lenders enter the limited company BTL market. But it has not closed to zero, and lenders with the most competitive personal rates typically do not match them on company products.

---

SPV vs Trading Company: A Note on Structure

If you do incorporate, structure matters. There are two broad approaches.

An SPV (Special Purpose Vehicle) is a company set up with the sole purpose of holding investment property. Its SIC codes (Standard Industrial Classification) will reflect property investment activities. Most specialist BTL lenders will lend to SPVs but not to general trading companies that happen to own property.

A trading company that also holds property faces a more restricted mortgage market and may find some lenders unwilling to lend at all. If you have an existing trading business and are considering adding property to it, speak to a mortgage broker experienced in limited company BTL before proceeding. The property should usually go into a separate SPV.

The distinction also matters for inheritance tax planning. Shares in a trading company may qualify for Business Property Relief; shares in a pure investment company typically do not. This is another reason specialist advice is not optional here.

---

The Mortgage Rate Gap in 2026

The Bank of England held its base rate at 3.75% at its February 2026 MPC meeting, with the next decision due on 19 March 2026 — check bankofengland.co.uk for the latest confirmed rate. Average BTL rates in the personal name market were running at around 4.6% to 4.9% for a two-year fix at 75% LTV as of early March 2026 (source: Moneyfacts). Limited company equivalents sit roughly 0.5% to 1% higher depending on the lender and LTV.

Some specialist lenders are offering more competitive limited company products than they were two years ago, and the range has widened considerably. The days of every limited company mortgage being 1.5% above personal-name equivalents are largely gone. But a gap remains, and you should factor it into any calculation.

A good independent mortgage broker with experience in limited company BTL will be able to show you a like-for-like comparison on specific products. Do not assume the gap is prohibitive without checking current availability for your specific LTV and property type.

---

A Decision Framework

Before spending money on accountants and solicitors, work through these questions:

Are you a higher-rate taxpayer? If yes, Section 24 is biting you now and will continue to. The case for a company on new purchases is strong. If no (basic rate), do the maths carefully. The saving may not justify the costs.

Is this a new purchase or an existing property? New purchase: incorporation costs are normal SDLT, no CGT crystallisation. Existing property: model the full transfer cost before proceeding.

Do you plan to retain profits and reinvest, or draw income? Retaining profits in a company is highly tax-efficient. Drawing them as salary or dividends adds another layer of tax. If you need the income now, the net benefit shrinks.

How long are you planning to hold? The longer your hold, the more incorporation's annual tax saving compounds. For a five-year hold, the maths may not stack up. For a 20-year hold, it almost certainly does.

What does the mortgage look like? Run the actual rate comparison for your specific situation. A broker with access to the full limited company market will give you a better picture than any guide can.

---

Getting the Numbers Right

RealYield's cashflow calculator lets you model rental income, mortgage costs, and expenses side by side for personal and limited company scenarios. Run your specific numbers before making any decisions.

And before any incorporation steps, speak to a property specialist accountant. The rules around connected party transfers, SDLT, CGT, and company structure are not areas where general advice is sufficient. The cost of getting it wrong is substantial; the cost of getting proper advice is modest by comparison.

This article is for informational purposes only and does not constitute financial or investment advice. Tax rules and legislation change frequently. Always verify current rates with HMRC or GOV.UK and seek independent professional advice before making investment decisions.