Should you incorporate? A Reading case study
Three flats, £74k gross rent, higher-rate taxpayer. The numbers, plainly. When incorporation pays and when it does not.
The starting point
A higher-rate landlord in Reading with three single-let flats: total purchase prices £870,000, current market value £1.1m. Annual gross rent £74,000. Mortgage interest £29,000 across three buy-to-let mortgages, all with three years left on fixed rates. Other annual expenses £8,500 (insurance, agent fees, repairs).
The personal tax position
Under Section 24, taxable rental profit is calculated as gross rent minus other expenses, ignoring mortgage interest. That gives £65,500 taxable profit. At higher rate (40%), the tax is £26,200. The 20% mortgage interest credit reduces that by £5,800 (20% of £29,000). Net personal tax: £20,400 a year.
Real economic profit (rent minus everything) is £36,500. The effective tax rate on actual profit is 56%, which feels punishing because that is what Section 24 is engineered to do for higher-rate landlords with leverage.
The company position
Inside a limited company, mortgage interest is fully deductible. Profit becomes £36,500. Corporation tax at 19% (small profits rate) is £6,935. If the landlord draws nothing and reinvests, they retain £29,565 inside the company. If they draw the full retained amount as dividends, dividend tax at 33.75% on £29,565 (after the £500 allowance) adds about £9,810. Total tax on the full-draw scenario: £16,745.
The annual saving versus the personal route is £3,655 if all profit is drawn, much higher if some is reinvested. Over ten years that compounds.
The transfer cost
Transferring the portfolio at £1.1m market value triggers SDLT for the company at the additional-property rates: roughly £83,000 on a single-tier transfer, more if Multiple Dwellings Relief no longer applies. Conveyancing, lender refinance, and admin add another £5,000–£10,000.
Section 162 incorporation relief defers the CGT on transfer if the property business meets the activity test (typically yes for a three-flat portfolio actively managed). The CGT charge becomes nil at transfer, but the gain is deferred into the share base cost.
The break-even maths
On a full-draw scenario, the £83,000 SDLT cost recovers in 23 years at £3,655 a year of saving. On a reinvest-everything scenario, the saving is closer to £13,500 a year and SDLT recovers in 6.5 years.
Conclusion for this landlord: incorporation is worth it only if a substantial portion of profit will be retained inside the company for refinancing or new acquisitions. If the rents are needed as personal income, the SDLT cost is rarely recouped.
The same numbers shift dramatically with portfolio size, mortgage rates, tax band, and draw plan. The lesson is not “incorporate” or “don’t” — it is “run the maths properly before paying any conveyancer.”
Incorporation also reshapes how you raise capital inside the company. If you later layer in tax-advantaged investment, specialist guidance from a firm such as SEIS Accountants is worth lining up before you commit to a structure, so the share base cost and relief positions stay clean.