Is forming a limited company right for UK landlords?

As the tax and regulatory landscape continues to shift for UK landlords, many are weighing up whether to hold their rental properties through a limited company structure rather than in their personal name. With the 2% surcharge on rental income not applying to limited companies, and Making Tax Digital requirements rolling out from April 2026, the decision has become more pressing than ever. But is incorporation the right move for your property portfolio?

The answer isn't straightforward. While limited company ownership offers compelling tax advantages for some landlords, particularly higher-rate taxpayers, it comes with increased complexity, upfront costs, and ongoing administrative responsibilities. In this guide, we'll walk through everything you need to know to make an informed decision about whether forming a limited company is right for your circumstances.

Understanding the tax treatment differences

The fundamental difference between holding property personally versus through a limited company comes down to how your rental income is taxed.

Personal ownership - income tax on rental profits

When you own property in your personal name, your net rental profit is added to your other income and taxed at your marginal income tax rate. From April 2027, rental income faces specific tax rates that are 2% higher than standard income tax, meaning basic rate taxpayers will pay 22% and higher rate taxpayers will pay 42% on their rental profits.

Since the changes to mortgage interest relief were introduced, individual landlords can no longer deduct their full mortgage interest costs from their rental income. Instead, they receive a 20% tax credit on their mortgage interest payments, which has significantly impacted the profitability of highly leveraged portfolios for higher-rate taxpayers.

Limited company ownership - corporation tax

Property held through a limited company is taxed under the corporation tax regime rather than income tax. Limited company landlords pay the corporation tax rate of 19% on their profits, and crucially, they can still deduct mortgage interest costs in full before calculating their taxable profit.

For companies with profits between £50,000 and £250,000, corporation tax is charged at the main rate but reduced by marginal relief. The ability to offset mortgage interest in full makes limited companies particularly attractive for landlords with substantial borrowing.

However, this isn't the end of the tax story. To access the profits personally, you'll need to extract them from the company, typically through a combination of salary and dividends. From April 2026, dividend tax rates will rise by 2%, meaning you'll pay additional tax when taking money out of the company.

Key advantages of limited company ownership

Full mortgage interest relief on tax

The most significant advantage for many landlords is the ability to deduct mortgage interest costs in full, this is called mortgage interest relief. Limited companies can still set off mortgage interest costs directly against rental income, making them particularly attractive for higher-rate taxpayers with mortgaged properties.

Consider a property generating £30,000 in annual rent with £15,000 in mortgage interest and £5,000 in other allowable expenses. An individual higher-rate taxpayer would pay tax on £30,000 minus £5,000 other expenses only, then receive a 20% credit on the £15,000 mortgage interest. A limited company would pay corporation tax on the £10,000 profit after deducting all expenses, resulting in a significantly lower tax bill.

Protection from rental income tax surcharge

Following the Autumn Budget 2024, individual landlords face an additional 2% tax surcharge on their rental income from April 2027. The 2% surcharge on rental income won't apply to limited companies, which continue paying standard corporation tax rates. Over time, this protection could represent substantial savings for landlords with significant rental portfolios.

Exemption from Making Tax Digital (initially)

Making Tax Digital for Income Tax Self-Assessment becomes mandatory from April 2026 for individuals with qualifying income over £50,000. Limited company landlords are unaffected by MTD for IT and will continue to report under the corporation tax system, avoiding the requirement for quarterly digital updates through approved landlord software.

While this provides administrative relief initially, it's worth noting that Making Tax Digital for Corporation Tax may be introduced in future years, so this advantage shouldn't be considered permanent.

Limited liability protection

A limited company provides a legal separation between your personal assets and your property business. In the event of financial difficulties, creditors generally cannot pursue your personal assets beyond what you've invested in the company, though directors can still be held personally liable in cases of wrongful trading or if personal guarantees have been given for buy-to-let mortgages.

Inheritance tax planning opportunities

Property held in a limited company doesn't form part of your personal estate for Inheritance Tax purposes. Instead, you pass on shares in the company, which can offer more flexible succession planning options and potentially reduce the IHT burden on your beneficiaries. This makes limited company structures particularly attractive for landlords building long-term property wealth to pass to the next generation.

Business credibility

Operating through a limited company can enhance your professional image when dealing with tenants, suppliers, and potential business partners. It signals that you're running your property portfolio as a serious business rather than a casual investment.

Significant drawbacks to consider

High costs of transferring existing properties

If you already own properties personally, transferring them into a limited company is treated as a sale at market value. This triggers several substantial costs that can make incorporation prohibitively expensive for existing landlords.

Stamp Duty Land Tax is charged on the transfer, including the 5% surcharge for additional properties (increased from 3% in the 2024 Autumn Budget). For a property worth £300,000, you'd pay £19,500 in SDLT alone. Capital Gains Tax may also be due on any increase in value since you acquired the property.

You'll need to obtain a new buy-to-let mortgage in the company's name, as personal mortgages cannot simply be transferred. Limited company mortgages typically come with higher interest rates and arrangement fees than personal buy-to-let mortgages, and you may need to provide personal guarantees to secure lending.

These upfront costs mean incorporation usually only makes sense for new property purchases rather than transferring existing portfolios. As detailed in our guide on what UK small landlords can expect in 2026, careful financial modelling is essential before making this decision.

Tax on profit extraction

While profits are taxed at the corporation tax rate within the company, you'll face additional tax when extracting money for personal use. Most landlords take a combination of a small salary, up to the National Insurance threshold and dividends.

Dividends are taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers (rates rising by 2% from April 2026). This means the overall tax burden can sometimes exceed what you'd pay as an individual, particularly if you need to extract profits regularly to cover personal expenses.

Increased administrative burden

Running a limited company involves significantly more paperwork and compliance requirements than personal ownership. You'll need to file annual accounts with Companies House, submit corporation tax returns to HMRC, maintain statutory records, and potentially run payroll if you're paying yourself a salary.

From November 2025, all company directors must verify their identity with Companies House, with existing directors having a transition window until approximately November 2026. These verification requirements add another layer of administrative responsibility.

Professional accountancy fees for limited companies are typically £1,000-£3,000 per year, substantially more than for basic self-assessment tax returns. You may also need specialist property accountants who understand the complexities of holding rental properties through companies.

Loss of personal CGT allowances and reliefs

When you sell a property held in your personal name, you can use your annual Capital Gains Tax exemption (currently £3,000) to shelter some of the gain from tax. Properties held in limited companies don't benefit from this exemption, and the company pays corporation tax on the full gain.

You also lose access to Private Residence Relief if you've ever lived in the property, and potentially Lettings Relief, both of which can significantly reduce CGT bills for individuals.

Limited flexibility in accessing equity

Property equity locked in a company can only be accessed by the company, not by you personally. If you need to release equity for non-property purposes, the process is more complex than with personally-owned properties. You'd typically need the company to take out borrowing, then extract the funds through dividends triggering dividend tax, rather than simply remortgaging in your own name.

Public disclosure requirements

Limited companies must file annual accounts with Companies House, which become publicly accessible. Competitors, tenants, and anyone else can view your company's financial information, including turnover, profit, and director details. Many landlords value the privacy of personal ownership and find this transparency uncomfortable.

When incorporation makes most sense

Limited company ownership typically works best for landlords in these situations:

Expanding portfolios - If you're actively growing your property portfolio and plan to purchase multiple properties over the coming years, setting up a limited company for new acquisitions allows you to benefit from the tax advantages without the prohibitive costs of transferring existing properties. You can retain personal ownership of your current properties while building a company portfolio alongside them.

Higher-rate taxpayers with leveraged properties - Landlords paying 40% or 45% income tax who have significant mortgage borrowing see the greatest benefit from full mortgage interest relief. The gap between the 20% tax credit available to individuals and the full deduction available to companies can save thousands of pounds annually on highly mortgaged properties.

Long-term investors with reinvestment plans - If you're building wealth for the long term and plan to reinvest profits into additional properties rather than extracting them for personal income, limited companies are highly tax-efficient. Profits retained in the company are only taxed at corporation tax rates, avoiding the additional dividend tax charged on extraction.

Multiple property owners avoiding MTD complexity - Landlords with portfolios generating over £50,000 gross rental income face quarterly reporting requirements under Making Tax Digital from April 2026. While incorporating solely to avoid MTD is not necessarily a straightforward solution, the exemption from quarterly reporting can be a welcome side benefit for landlords who already have other tax reasons to incorporate.

Succession planning focus - Landlords concerned about passing wealth to the next generation efficiently may find limited companies attractive for Inheritance Tax planning purposes, particularly when combined with careful share structuring and potentially using trusts.

When personal ownership remains better

Limited companies aren't right for every landlord. Personal ownership typically makes more sense in these circumstances:

Small landlords - If you own just one or two properties with modest rental income, the administrative costs and complexity of running a limited company are unlikely to be justified by the tax savings. The accountancy fees alone could outweigh any tax benefit.

Landlords needing regular income - If you rely on rental income to supplement your salary or fund your retirement, the double taxation of profits (e.g. corporation tax followed by dividend tax) can make limited companies less attractive. The tax benefits are greatest when profits are retained and reinvested rather than extracted.

Properties with minimal or no mortgage - The main tax advantage of limited companies is the full deduction of mortgage interest. If your properties are unmortgaged or have small mortgages, this benefit is minimal or non-existent, and you're primarily facing the disadvantages of incorporation.

Landlords planning to sell soon - The loss of personal CGT exemptions and reliefs means limited company ownership can increase your tax bill when selling properties. If you're planning to dispose of properties in the near future, personal ownership may result in a lower overall tax burden across both rental income and capital gains.

Older landlords with established portfolios - The costs of transferring existing properties into a limited company rarely make financial sense unless you have a very large, highly mortgaged portfolio and plan to hold for many more years. For landlords approaching retirement, personal ownership typically remains more practical.

The importance of professional advice

The decision to incorporate is highly individual and depends on your specific circumstances, including your marginal tax rate, level of mortgage borrowing, whether you're buying or already own properties, your income needs, and your long-term investment goals.

Before making any decision, you should consult with a qualified accountant or tax adviser who specialises in property taxation. They can model different scenarios based on your actual numbers and provide personalised advice taking into account all relevant factors.

There's no one-size-fits-all approach to holding rental property. What works for one landlord may not work for another, even with similar-sized property portfolios.

Hybrid approaches worth considering

You don't necessarily need to make an all-or-nothing decision. Many landlords operate hybrid structures:

Mixed portfolio - Hold existing properties in your personal name to avoid the costs of transfer, while purchasing new properties through a limited company to benefit from the tax advantages going forward.

Joint ventures - Partner with other investors through a limited company for larger deals or HMO projects, while maintaining personal ownership of your standard buy-to-lets.

Property and management companies - Retain personal ownership of properties but set up a management company to provide services to your properties, allowing some income to be channelled through the lower-tax corporate structure.

These approaches add complexity but can optimise your overall tax position while managing risk. Again, professional advice is essential to structure these arrangements correctly and ensure compliance with HMRC rules.

Administrative considerations for limited companies

If you decide to proceed with incorporation, you'll need to manage several ongoing responsibilities effectively.

Your company must maintain accurate financial records and file accounts with Companies House within nine months of your financial year-end. Corporation tax returns must be submitted to HMRC within 12 months of your year-end, with any tax due paid within nine months and one day.

You'll need to hold an annual general meeting, keep statutory registers, and file an annual confirmation statement with Companies House. If you're paying yourself through the company, you'll need to operate PAYE and submit payroll information to HMRC regularly.

Property management apps like August can help track income and expenses for your rental properties, which can then be passed to your accountant for preparing company accounts. Maintaining clear separation between company and personal finances is crucial for both tax compliance and protecting your limited liability status.

The regulatory landscape for 2026 and beyond

Beyond tax considerations, the broader regulatory changes affecting landlords should factor into your decision-making. The Renters' Rights Act coming into force in May 2026 will abolish Section 21 no-fault evictions and introduce new possession grounds, affecting how all landlords manage their tenancies.

Compliance requirements around Gas Safety Certificates, EICRs, EPCs, and smoke alarm regulations apply equally to limited companies and individual landlords. The administrative burden of these compliance obligations may feel heavier when combined with the additional corporate compliance requirements.

Future changes to look out for include potential minimum EPC standards requiring properties to reach band C by 2030, the planned Private Rented Sector Database requiring all landlords to register themselves and their properties, and mandatory membership of the Private Rented Sector Ombudsman by 2028. These changes affect the underlying economics of property ownership regardless of structure.

Financial modelling is essential

Before incorporating, you should create detailed financial projections comparing the two structures over a realistic time horizon, typically at least five to ten years. Include:

• Current and projected rental income

• All expenses including mortgage interest, repairs, landlord insurance, and management costs

• Tax calculations under both personal and company ownership

• Costs of incorporation including SDLT, legal fees, and refinancing costs

• Accountancy fees and administrative costs

• Your plans for profit extraction and reinvestment

• Potential future property sales and associated CGT

Many accountants will provide incorporation modelling as part of their advisory service. This investment in proper analysis can save you from making an expensive mistake or help you identify substantial tax savings that justify the additional complexity.

Making your decision

For many UK landlords in 2026, limited company ownership offers genuine tax advantages, particularly for higher-rate taxpayers with mortgaged properties and ambitious growth plans. The protection from the 2% rental income surcharge, full mortgage interest relief, and IHT planning opportunities make a compelling case for incorporation in the right circumstances.

However, limited companies bring significant upfront costs, ongoing administrative burden, and complexity around profit extraction that shouldn't be underestimated. For smaller landlords, those needing regular income, or those with unmortgaged properties, personal ownership often remains the more practical and tax-efficient choice.

The decision ultimately depends on your individual circumstances, goals, and risk tolerance. As we explored in our 2025 year in review, successful landlording in the modern regulatory environment requires careful planning and professional support.

Whether you choose personal ownership, limited company ownership, or a hybrid approach, the key is to make an informed decision based on comprehensive financial modelling and professional tax advice. The right structure for your portfolio should align with your long-term investment strategy while managing both tax efficiency and administrative complexity effectively.

For help managing your rental properties and staying compliant with the latest regulations, explore how August's landlord features can support your property business in 2026 and beyond.

Disclaimer: This article is a guide and not intended to be relied upon as legal or professional advice, or as a substitute for it. August does not accept any liability for any errors, omissions or misstatements contained in this article. Always speak to a suitably qualified professional if you require specific advice or information.