UK landlords shift rental properties to limited companies to offset higher income tax, Digi Mart USA News (United Kingdom): Property owners in the United Kingdom are expected to stop registering rental properties in their own names to reduce tax bills after a rise in tax on rental income announced at the Budget, according to The i Paper.
Experts say the change gives property owners a “big incentive” to set up as a limited company after Chancellor John Healey set out the tax increase. However, they warned the switch will not be an “escape hatch” for all landlords, particularly those with small portfolios who may face higher costs by moving to company status.
Healey’s changes mean basic-rate landlords will face 24 per cent income tax on rental income, up from 20 per cent. Higher-rate taxpayers will see an increase from 40 to 44 per cent.
Landlords are angry that Healey doubled the 2 percentage point rise that had been announced for 2027 by his predecessor, Rachel Reeves, meaning a 4 percentage point increase in total from April next year.
Analysis by The Letting Partnership, based on an average portfolio of around seven properties, estimates landlords face an annual tax increase of almost £3,500. The measure is expected to raise around £2 billion over the next five years for the Treasury.
The Office for Budget Responsibility has warned the plans risk a “steady rise” in rents as landlords pass on extra costs to tenants.
Under a limited company structure, landlords pay corporation tax, which can be as low as 19 per cent on profits up to £50,000, and can fully deduct mortgage interest before tax. For example, a landlord renting a flat for £1,000 a month with £500 in mortgage interest would pay 19 per cent corporation tax on the £500 profit, a bill of £95.
A higher-rate landlord with the property in their own name would face £440 in tax on the full £1,000 income from next year, or £320 after the mortgage interest tax credit.
There are drawbacks. Transferring a property to a company effectively sells it to that company, so owners may have to pay stamp duty and capital gains tax again.
Profits withdrawn from the company are also subject to income tax or dividend tax. Chris Mason, chief operating officer at The Letting Partnership, said switching “can be a good option” and “more tax effective” for some, but described it as “not a straightforward, simple escape hatch” for landlords with one or two properties.
David Fell, lead analyst at Hamptons, said the tax increase was “a really big incentive to look at the option of setting up as a buy-to-let limited company.” Hamptons data showed just over 41,000 buy-to-let companies were set up in the first eight months of 2026, with 49 per cent from individual landlords switching and 51 per cent from newly bought properties.
Fell said the benefits are greatest for higher-rate taxpayers with substantial mortgage interest, while smaller basic-rate landlords may be better off keeping properties in their personal names.
Paul Shamplina, founder of Landlord Action, said the tax rise could push more smaller landlords to sell. Barry Soraff, a tax adviser at Xeinadin, said switching faces significant obstacles for landlords holding properties personally, mainly capital gains and stamp duty costs.
London landlord Mohamed Ajami, who sold one of four properties to cover higher costs, said he had examined switching but concluded the hurdles were too high for him.
Dan Wilson Craw of Generation Rent said he was concerned some landlords would raise rents and blame the tax increase, and called on the Government to consider rent controls. Clara Collingwood of the Renters’ Reform Coalition said many landlords make profits that far exceed alternative investments and can absorb a moderate tax increase.
