Last updated: 13 Jul 2026 10:00 Posted in: Tax
Muhammad Bilal examines how upcoming tax changes and reporting requirements are reshaping the landscape for landlords, and whether incorporation may offer a more efficient structure.
What if the way you currently hold your rental property is quietly costing you thousands each year?
Recent changes are already widening the gap between taxable profit and actual cash retained, and further shifts are on the horizon. A proposed 2% increase across income tax bands, combined with ongoing restrictions on mortgage interest relief, means that landlords may soon face higher liabilities on the same level of rental income. From April 2028, high-value residential properties could also face an annual surcharge, adding yet another layer of cost.
This raises an important question for many landlords: is your current ownership structure still the most efficient?
At the same time, tax exposure is not the only area undergoing change. Landlords must also prepare for a significant shift in how their income is reported.
From April 2026, landlords with annual rental income exceeding £50,000 will be required to maintain digital records and submit quarterly updates to HM Revenue and Customs using Making Tax Digital (MTD) compatible software. Those earning between £30,000 and £50,000 will follow from April 2027.
These quarterly updates will include summary figures of income and expenses rather than full tax calculations, with deadlines shortly after each quarter end (for example, the first update will be due by 7 August). A final end-of-year submission will still be required to confirm the overall tax position.
While MTD does not directly increase the amount of tax payable, it significantly increases the frequency of reporting and places greater emphasis on accurate, real-time record keeping. For many landlords, this represents a move away from annual Self Assessment towards a more continuous compliance process, requiring adjustments to systems, software and day-to-day financial management.
Against this backdrop, landlords and advisors alike should be reviewing existing structures. The key consideration is no longer just how much income a property generates, but how efficiently that income is taxed.
The central question is simple: does it still make sense to hold property personally, or is it time to consider incorporation?
From 6 April 2027, income tax on rental profits is expected to increase by two percentage points across all bands:
These increases apply specifically to property income.
For individual landlords, mortgage interest relief remains restricted. Finance costs cannot be deducted when calculating taxable rental profit. Instead, landlords receive a tax credit equal to the basic rate of tax (currently 20%, assumed here at 22% under the proposed changes).
This creates a disconnect between taxable income and actual cash flow. Landlords are taxed on income they have not effectively retained, particularly where borrowing levels are high.
In contrast, properties held within a limited company are unaffected by these restrictions. Mortgage interest is fully deductible, and profits are subject to corporation tax at 19% or 25%, depending on profit levels.
Since the introduction of Finance (No 2) Act 2015 s 24 (commonly referred to as the ‘Section 24’ rules), individual landlords can no longer deduct mortgage interest from rental income when calculating taxable profit. Instead, tax is charged on the full rental income, with only a basic rate tax credit provided for finance costs.
For landlords with higher borrowing, this can significantly inflate taxable income compared to actual cash profit. In some cases, it may push individuals into higher tax bands or reduce access to the personal allowance and child benefit.
By contrast, a limited company is not subject to these restrictions. Mortgage interest is fully deductible, meaning that tax is calculated on true net profit, with corporation tax applied at 19% or 25% depending on profit levels.
The impact of these rules is best understood through an example (see above).
Assume that a property valued at £2 million generates £85,000 in annual rental income, with £45,000 of mortgage interest. The landlord is a higher-rate taxpayer.
Under personal ownership, tax is calculated on the full £85,000 of income. Mortgage interest is not deducted but instead generates a basic rate tax credit.
The company therefore retains £4,832 more from the same property income. Where profits are retained for reinvestment, this advantage can compound over time.
The advantage of a company structure depends on whether profits are retained or withdrawn.
If profits are extracted:
For landlords relying on rental income for living costs, this additional layer of tax can significantly reduce the benefit of incorporation. By contrast, for those building a portfolio or not requiring immediate income, retaining profits within the company can improve long-term tax efficiency.
Transferring property into a company is not tax free and must be carefully considered.
Capital gains tax applies as if the property were sold at market value. Rates for residential property are 18% and 24%, with a £3,000 annual exemption. For long-held properties, this can result in a substantial upfront liability.
Stamp duty land tax is also payable by the company on the market value of the property. Higher rates apply to additional dwellings, and this is often the largest cost of incorporation.
Additional considerations include:
Relief from capital gains tax and stamp duty land tax may be available where the activity qualifies as a genuine property business, but this depends on the specific facts and should not be assumed.
The April 2027 changes are approaching, and the window for effective planning is narrowing. Incorporation, refinancing and restructuring all take time to implement.
The key consideration remains: do you need the rental income now, or can you retain it for future growth?
For landlords drawing income, the additional tax on extraction may reduce the benefits of a company structure. For those focused on long term portfolio growth, the difference in tax treatment can deliver meaningful savings over time.
The proposed 2028 surcharge increases the overall cost of ownership but does not change which structure is more efficient from a tax perspective.
Before transferring property into a limited company, landlords should assess more than just the headline corporation tax rate. Incorporation can improve tax efficiency in some situations, but it may also create additional costs and administrative obligations.
Where rental profits are required to cover living expenses, the tax cost of extracting funds from a company can reduce much of the potential benefit. Dividends and salaries are both subject to further taxation once profits leave the company structure.
The greater the mortgage interest, the more significant the impact of the Finance (No 2) Act 2015 s 24 restrictions for individual landlords. Properties with high borrowing often see the largest difference between personal and corporate ownership.
Incorporation tends to favour landlords focused on long-term portfolio growth, particularly where profits can be retained for reinvestment. Shorter-term ownership may not justify the upfront restructuring costs.
Capital gains tax and stamp duty land tax can create substantial immediate liabilities when transferring property into a company. These costs should be quantified before any restructuring takes place.
With quarterly reporting becoming mandatory from April 2026 onwards, landlords should review bookkeeping systems, software and record keeping processes now. Digital compliance will become an increasingly important part of property ownership regardless of the structure used.
Author bio
Muhammad Bilal
Senior Consultant
M B Dean Accountants
"The key consideration is no longer just how much income a property generates, but how efficiently that income is taxed."
Muhammad Bilal, Senior Consultant, M B Dean Accountants