Should you incorporate your property portfolio? What are the benefits and drawbacks of the process?
Incorporation is often hailed as the golden ticket for landlords looking to reduce their tax burden. But is it really the smart move for everyone? Unfortunately, as with most things in property investment, the answer is: it depends.
What Is Incorporation, Really?
At its core, Incorporation means transferring your property portfolio from your name into a Limited Company. In return, you receive shares in that company, lower Corporation Tax rates and potential long-term planning benefits.
But the reality is more nuanced, and the process won’t be best for everyone.
The Upside: Why Some Landlords Benefit
Incorporation can unlock significant tax advantages for landlords with larger portfolios, typically those with 5 or more properties. If you’re actively managing your properties (think 10+ hours a week), you may qualify for Incorporation Relief, which could eliminate Capital Gains Tax (CGT) on the transfer.
There’s also potential mitigation of Stamp Duty, but only if you’re operating as a genuine partnership, such as a long-standing husband-and-wife team. These benefits could make Incorporation a powerful tool for many landlords.
The Downside: Why It’s Not for Everyone
Despite the potential perks, Incorporation isn’t necessarily the right solution for your portfolio. In fact, for more than half of UK landlords, it may not be the right move.
Here’s why:
- Double Taxation: While Corporation Tax may be lower, extracting profits through dividends or salary triggers personal Income Tax, sometimes wiping out the initial savings.
- Strict Criteria: To qualify for Incorporation Relief, you must prove your portfolio is a business. That means keeping detailed records of your time spent on property-related activities. HMRC won’t ask for proof upfront, but they might in future years.
- Stamp Duty and Your Mortgage: Stamp Duty applies at market value unless you meet specific partnership rules. You may also need to refinance your properties onto Limited Company rates, bringing its own cost.
So, Should You Incorporate?
As discussed, the right decision for you depends on your portfolio size, income needs, and long-term goals. For some, Incorporation is a savvy move; for others, simpler strategies, like buying future properties in a Limited Company or adjusting ownership shares between spouses/partners, may be more effective.
The key takeaway? Get qualified advice. Incorporation can be a game-changer—but only if it’s done right. Speak to our expert partners at Comprehensive Tax Planning and see what option is right for you.
If you plan to incorporate your portfolio, let us take the stress from the refinance process! As a whole-of-market broker, we’ll search to find you the most competitive rate available to suit your needs. Call us on 0345 345 6788 or submit an enquiry here.
Our latest webinar, ‘BTL Incorporation & Landlord Tax: Your Questions Answered’, is now available to watch on demand! We brought together the experts to help you understand the Incorporation process and how it could boost your property portfolio. Watch it back here.
Next Steps
To find out what’s right for you, it’s essential to get in touch.
For information about Limited Company mortgage finance, please submit an enquiry here or call us on 0345 345 6788.
If you need professional tax advice, please contact our partners at Comprehensive Tax Planning.
