Buy To Let Properties
Save Tax, Do It Right

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For properties, mortgage interest relief has been slashed, creating ‘artificial profits’ and causing personal tax bills to rise drastically, resulting in negative cash flow for investors of properties.

Many are considering moving their properties into a limited company. It sounds like a clever move, but without the right tax structure, it can lead to unexpected tax charges and HMRC enquiries.

Properties, Tax

(Read Time: Approx. 5 minutes)

Topics Discussed:

  • The key tax charges potentially triggered by property incorporation
  • How Section 162 and Section 15 SDLT reliefs work
  • How not to fall into the traps and make it work for you

Why Are Landlords Considering Incorporation?

It all comes down to Section 24 of the Finance Act 2015.

This change restricts how much mortgage interest relief individual landlords can deduct as an expense.

Instead of deducting the full amount of interest from rental income, you’re limited to a basic rate credit of 20%.

The result? Landlords are now paying tax on artificial profits that don’t reflect their true cash flow.

This shift has pushed many higher-rate taxpayers into the 40% tax bracket, leaving them with a negative cash position each month, worsened if they have void periods, and tenants in arrears.

Within a limited company, however, mortgage interest is fully deductible as a trading expense.

On paper, this makes incorporation look like the perfect solution, but making the move is fraught with tax traps.

The Capital Gains Tax Obstacle – Section 162

When transferring property into a company, HMRC treats it as if you’ve sold the property at market value, even if no money changes hands. That triggers Capital Gains Tax (CGT) on the full gain.

Section 162 Incorporation Relief can remove that CGT liability, but it’s only available if your property portfolio qualifies as a genuine business.

This is where most landlords fall foul due to negligent or lack of tax advice.

To qualify for CGT Holdover relief, you must be:

  • Actively managing the portfolio (not passively receiving rent)
  • Spending at least 20 hours per week on the business
  • Holding a minimum of four properties is often seen as the baseline

These aren’t hard rules, but they’ve emerged from case law, including the Ramsey case, and are now used by HMRC as informal thresholds.

In this Upper Tribunal case, Mrs Ramsey jointly owned a single property that had been converted into ten self-contained flats, complete with a communal area, garden, car park, and garages.
 
She and her husband were actively involved in the day-to-day management of the property, each spending at least 20 hours per week on the business and having no other source of income during the relevant period.
 
Their involvement included substantial repair and maintenance work, some of which they carried out personally, as well as assistance provided to elderly tenants.
 
Prior to the transfer of the property into a limited company, Mrs Ramsey had also undertaken preparatory work for its refurbishment and redevelopment.
 
The Tribunal ruled in favour of Mrs Ramsey, concluding that the overall level of activity was sufficient for the operation to be treated as a business for the purposes of Section 162 incorporation relief.
 
The judge acknowledged that while each individual task could have been performed by a diligent landlord, it was the combined volume and intensity of those tasks that distinguished her from a passive investor.
 
However, the judgment came with a clear warning: not all property owners will qualify.
 
The decision hinged on the degree of involvement, and the court stressed that a landlord must demonstrate business-like activity that goes beyond merely receiving rental income to fall within the scope of incorporation relief.
 

If you use letting agents for everything, or own only one or two properties, Section 162 is unlikely to apply.

If you incorrectly claim relief, you could end up with a CGT bill and HMRC scrutiny under Spotlight 63, which focuses on failed attempts at tax-motivated incorporations.

Stamp Duty Land Tax Obstacle – Section 15

Even if you escape CGT, there’s still Stamp Duty Land Tax (SDLT) to deal with.

When you transfer properties into a company, HMRC charges SDLT on the market value, not the amount of money actually exchanged.

This is where Section 15 becomes a problem. For landlords with multiple properties, SDLT bills can be substantial.

There is a potential solution: the partnership exemption.

If your portfolio is held in a genuine property partnership, with separate bank accounts, formal partnership tax returns, and a clear trading history of at least two years, you may be able to transfer the properties to a company without incurring SDLT.

But it must be a real business structure, not a token arrangement with a spouse. HMRC will reject artificial partnerships.

Other Issues You Can’t Ignore

Even if you qualify for both reliefs, there are several additional complications to consider:

  • Lender Consent: You’ll need new mortgages under the company name. Many lenders won’t allow a simple transfer, so new finance will be required — often with higher interest rates and lower LTVs.
  • Latent Gains: If you’ve remortgaged and extracted equity from your properties, part of the original capital may now be viewed as a loan. This can complicate your Section 162 claim, and the holdover gain will be restricted.
  • Hybrid Structures: Some advisers promote overly engineered models combining trusts, LLPs, and companies. Many of these have now been investigated by HMRC under Spotlight 63, and several firms have been issued with formal enquiries.

Can It Be Done Tax Efficiently?

Yes, but only if it’s done properly with tax advice from a regulated advisor. In a nutshell, the requirements are:

  • You genuinely run a property business
  • You meet the conditions for CGT and SDLT reliefs
  • You take care to document everything with HMRC standards in mind

For most landlords, four or more properties and 20+ hours a week of active involvement are the minimum benchmarks.

If you’re ticking those boxes, you might be in a position to make the move.

However, it’s vital to understand this is not just an exercise in filling out a few forms.

If you get it wrong, you could be hit with CGT, SDLT, or worse: an HMRC investigation with interest and penalties attached.

Summary

Transferring buy-to-let properties into a limited company can bring major tax savings, but only for landlords who genuinely qualify.

You need to meet strict conditions to access Section 162 CGT relief and avoid SDLT through the partnership route.

Without these, you could be facing a huge tax bill.

Get in touch with us at Tax Expert for tailored advice on incorporation and how to manage your buy-to-let portfolio in the most tax-efficient way.

Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.

Kind regards,

Ilyas Patel