Thinking of incorporating your residential lettings business?

Posted at 12:19 pm on December 16, 2015 by John Kavanagh

Thinking of incorporating your residential lettings business?

The recent budget changes to mortgage interest relief have focused a lot of landlords’ minds on the potential benefits of running their businesses through a limited company. Companies pay tax at much lower rates than individuals and there are no restrictions on the deduction of mortgage interest. Individuals are taxed on all of their rental income, often at the highest marginal rates, whether they need to withdraw it from the business or not. With a limited company, they have the flexibility to draw salary, bonus or dividends as they need them, which assist greatly with year to year tax planning.

Clearly, there are very valuable tax saving opportunities if incorporation is approached correctly, yet there are also costly traps for the unwary. There are three potential obstacles to be overcome – Capital Gains Tax (CGT), Stamp Duty Land Tax (SDLT) and the unavoidable issue of refinancing.


The transfer of assets to a company is usually a disposal at market value for CGT purposes, triggering a possible CGT charge. However, there is a statutory relief which provides that CGT is deferred on the transfer of an existing business to a company.   If it is possible to show that the residential lettings are genuinely being run as a business, the disposals will qualify for relief.

In some cases, the landlords’ activities will be substantial and will clearly amount to a business, while in others the position may not be quite so clear cut. We can advise landlords on their prospects of obtaining CGT relief on incorporation and where this is unlikely at this stage, we can advise on how to improve those prospects in the future.


Again, SDLT normally applies to transfers of land or buildings to a company. However, another statutory relief may be available to exempt the transfer depending on the nature of the ownership structure. Again, we can advise on SDLT reliefs and how best to obtain them.


Lenders to companies generally take different approaches to those adopted by traditional buy to let finance providers, and interest rates may be higher. The substantial tax savings that would accrue are almost always much more than enough to offset any additional interest cost. There may even be advantages to corporate rather than private borrowing, for example if your age makes it difficult to access traditional mortgage finance.

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If you are interested in a free initial consultation to discuss your options, please do get in touch using our contact form.

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