Should you transfer investment property to a company? The tax benefits explained

If you own investment property, you may be wondering whether transferring it to a limited company is a smart financial move.

With tax rules tightening for individual landlords and interest in corporate structures growing, it is important to understand the tax benefits and potential downsides before making a decision.

The tax benefits of using a limited company

For many, the change to company ownership is driven by tax efficiency.

Changes to mortgage interest relief and higher Income Tax rates have made it more expensive for individuals to hold property in their own name.

A limited company structure can offer a way to reduce tax liabilities and improve long-term financial planning. Here are some of the key benefits:

Lower tax rates on rental income

If you own a rental property as an individual, your rental profits are subject to Income Tax at your personal rate – 20 per cent, 40 per cent, or even 45 per cent for higher earners.

In contrast, rental profits in a company are taxed at Corporation Tax rates, which currently stand at 19 per cent for profits up to £50,000 and 25 per cent for profits above £250,000.

Full mortgage interest relief

Since April 2020, individual landlords have been restricted to a 20 per cent tax credit on mortgage interest.

However, companies can still deduct mortgage interest as a business expense, making company ownership more attractive for those with significant borrowing.

Retaining profits within the company

If you do not need to withdraw rental income for personal use, leaving profits in the company can be tax-efficient.

Unlike personal ownership, where all rental profits are taxed annually, a company can retain profits and reinvest them into further property purchases or other investments.

Potential Inheritance Tax (IHT) advantages

Holding property in a company may provide greater flexibility for estate planning.

Shares in a company can be passed down more easily than physical property, and structured correctly, it may allow for more efficient IHT planning.

What are the tax costs of transferring property?

While the tax benefits can be significant, transferring an existing property to a limited company is not without its costs:

Stamp Duty Land Tax (SDLT) – The company will need to pay SDLT based on the property’s market value, including the additional five per cent surcharge on second properties. From April 2025, SDLT thresholds will revert to pre-pandemic levels, meaning a potential increase in tax for transfers.

Capital Gains Tax (CGT) – If your property has increased in value since you bought it, transferring it to a company will trigger a CGT charge based on the gain. The annual CGT exemption has now dropped to just £3,000, meaning more of the gain is taxable.

Extracting money from the company – While Corporation Tax is lower than Income Tax, withdrawing profits through dividends or salary will be subject to additional tax, which needs to be factored in.

Future tax changes to be aware of

The tax landscape for landlords is changing, and upcoming reforms could impact the benefits of company ownership:

SDLT changes in April 2025 – SDLT thresholds are set to fall, increasing the upfront tax burden when transferring property.

Abolition of the non-dom tax regime – This could impact overseas investors considering UK property investment through a company structure.

Potential reform of property taxation – The Government has hinted at further restrictions on tax advantages for company landlords, so you will need to stay informed on any update.