Every landlord with a mortgage is asking this. The answer is more nuanced than the people selling limited company setups would like you to believe.
A landlord typically comes to us with two or three mortgaged properties, a salary above £50,000, and the firm belief that incorporation will solve everything. Sometimes they’ve already spoken to a company formation specialist. Here’s what I actually tell them.
What Section 24 actually does — and who it hits hardest
Since April 2020, individual landlords can no longer deduct mortgage interest as a property expense. Instead, you get a 20% tax credit. For basic-rate taxpayers the maths largely washes out. For higher-rate taxpayers, it does not.
| Before April 2020 | Now (Section 24 in full) | |
|---|---|---|
| Rental income | £24,000 | £24,000 |
| Mortgage interest | (£12,000) — deducted | Not deducted |
| Taxable profit | £12,000 | £24,000 |
| Tax at 40% (higher rate) | £4,800 | £9,600 |
| Less 20% tax credit on interest | N/A | (£2,400) |
| Net tax paid | £4,800 | £7,200 — 50% more |
That £2,400 gap per property per year adds up fast. A landlord with four mortgaged properties and a salary above £50,270 can easily be paying £8,000–£12,000 in additional tax annually — on income they may not have actually received in cash.
Personal ownership vs limited company — the full comparison
| Factor | Personal ownership | Limited company |
|---|---|---|
| Mortgage interest deduction | 20% tax credit only | Fully deductible |
| Tax rate on profits | 20–45% (income tax) | 19–25% corporation tax |
| SDLT on transfer | Already paid | Triggered again at market value + 3% surcharge |
| CGT on transfer | N/A — no transfer | Disposal at market value — CGT may apply |
| Mortgage rates | Standard buy-to-let rates | Higher (commercial lending) |
| Annual admin cost | Lower | Higher — statutory accounts, CT600, Companies House |
| Extracting profit | Use it directly | Salary or dividend — both taxed |
| Best for new purchases | Depends on tax rate | Often yes — no transfer costs |
A real case study
Higher-rate taxpayer. Salary £65,000. Four buy-to-let properties, combined rental income £48,000, combined mortgage interest £26,000. Portfolio value £920,000 — purchase price £580,000.
Section 24 additional tax cost per year:approximately £10,400 vs pre-2020 position.
Cost of incorporating:SDLT at current rates including 3% surcharge ≈ £42,000. CGT on £340,000 gain ≈ £81,600 at 24% (no Incorporation Relief available — HMRC did not accept portfolio as a business).
Verdict:incorporation would take over 12 years to break even on the upfront costs alone — before accounting for higher mortgage rates. Decision: stay personal, restructure income via pension contributions to reduce the Section 24 impact instead. Annual tax saving achieved: £4,200.
Pros and cons — the short version
| For incorporating | Against incorporating | |
|---|---|---|
| Mortgage interest fully deductible |
SDLT triggered again on transfer (+ 3% surcharge)
|
|
| Profits taxed at 19–25%, not 40–45% | CGT on market value gain — potentially large | |
| Retained profits compound faster | Company mortgage rates typically higher | |
| Flexible for succession planning | Higher accountancy and admin costs | |
| Buying new? Start in a company — no transfer cost | Getting money out means salary/dividend tax | |
Who should incorporate — and who shouldn’t
| Incorporation tends to make sense if you… | |
| Are a higher or additional rate taxpayer with significant mortgage interest | Plan to hold properties for 10+ years (time to recover transfer costs) |
| Don’t need to draw the rental income immediately | Are buying new properties and can go in via a company from the start |
Incorporation probably doesn’t make sense if you…
| Have small or no mortgage debt — Section 24 barely affects you | Need to live on the rental income month to month |
| Might sell within five years — SDLT/CGT costs won’t be recovered | Own one or two properties with relatively modest profits |
The SDLT and CGT warnings you must read before acting
Transferring properties into a company is legally a disposal at market value. That means SDLT — at current rates, including the 3% additional dwelling surcharge (now 5% from October 2024 — the second home surcharge was increased in the Autumn Budget) — is payable as if the company is buying the properties fresh. On a portfolio worth £800,000, SDLT alone could exceed £40,000.
CGT may also apply on the gain since purchase. Incorporation Relief (s.162 TCGA 1992) can defer this — but only if HMRC accepts that the portfolio constitutes a business rather than passive investment. That test is narrow and contested. Getting it wrong triggers the full liability.
Mortgage: the cost most calculators miss
Company buy-to-let mortgages are treated as commercial lending. Rates are typically 0.5–1.5% higher than personal buy-to-let mortgages. Lenders often require the company to be a Special Purpose Vehicle with a specific SIC code (68209 is standard), and personal guarantees from directors are common.
On a £300,000 mortgage, 1% higher rate = £3,000 more interest per year. That alone can eat a significant portion of the corporation tax saving.
What about furnished holiday lets?
If you had FHL properties, the regime was abolished from April 2025. The advantageous rules on capital allowances, pension relief, and business asset disposal relief no longer apply. Your tax position has changed materially — if your accountant hasn’t raised this already, that conversation is overdue.
Get a proper model of your situation — not a generic one
Northwyn offers a free landlord tax health check: a focused review of your Section 24 position, whether incorporation makes financial sense, and what else could reduce your bill. Takes 30 minutes. No obligation.