Transferring BTL to a Limited Company 2026: SDLT, CGT and Incorporation Relief

Incorporating a buy-to-let portfolio into a limited company has become increasingly popular since the phasing out of mortgage interest tax relief for individual landlords from 2017 onwards. Inside a company, interest remains fully deductible and profits are taxed at corporation tax rates rather than your marginal income tax rate. But the transfer itself triggers SDLT and potentially CGT -- two substantial upfront costs that can take years to recoup.

SDLT on the transfer: the unavoidable cost

When you transfer property to a limited company -- even one you wholly own -- HMRC treats the transaction as a sale at market value for Stamp Duty Land Tax purposes. This applies even if no cash changes hands and no actual purchase price is paid.

In 2026/27, the SDLT rates for a company buying residential property are:

On a portfolio of three properties worth £300,000, £350,000 and £400,000 (total £1.05 million), the SDLT bill could easily reach £70,000-£90,000. This is cash that must be paid regardless of whether profits are extracted from the company.

CGT on the disposal

The transfer is also treated as a disposal for Capital Gains Tax at market value. Each property's gain is the difference between its current market value and its original purchase price (plus allowable acquisition and improvement costs).

Residential property gains in 2026/27 are taxed at:

• 18% if you are a basic-rate taxpayer (or the gain falls within the basic-rate band)
• 24% if you are a higher- or additional-rate taxpayer

The £3,000 Annual Exempt Amount can offset some gain, but on a multi-property portfolio this is usually marginal.

Example: A property bought for £200,000 in 2012 is transferred at a market value of £380,000 in 2026. Gain = £180,000. CGT at 24% = £43,200 (after £3,000 AEA, taxable gain is £177,000, so £42,480). On three such properties the CGT alone could exceed £120,000.

S162 TCGA incorporation relief: the potential escape route

Section 162 of the Taxation of Chargeable Gains Act 1992 allows a person who transfers a business to a company in exchange for shares to defer (roll over) any CGT that would otherwise arise. The gain is embedded in the cost of the shares and only becomes taxable when the shares are sold.

The critical question for landlords is: does a BTL portfolio constitute a "business"?

HMRC's view (confirmed in multiple cases including the influential Ramsay v HMRC [2013] tribunal) is that most BTL portfolios are investments, not businesses. A business requires:

• Substantial landlord activity (not just collecting rent via a letting agent)
• Regular active management -- dealing with maintenance, tenants, refurbishments personally
• Typically at least 3-5 properties with significant time commitment (HMRC often looks for 20+ hours per week)

Portfolios managed entirely by letting agents with minimal owner involvement are virtually certain to fail the test. Those with multiple properties, active management, holiday lets, or furnished short-term lets have a stronger case but should still take specialist advice.

If s162 applies, CGT is deferred in full. If it does not apply, there is no partial relief -- CGT is payable in full.

Mortgage implications

Most residential BTL mortgages are issued to individuals and cannot be legally transferred to a company. When you incorporate, you will almost certainly need to refinance all properties onto limited company BTL mortgage products.

In 2026, company BTL mortgage rates are typically 0.5%-1.5% higher than equivalent personal-name products. On a portfolio of £1 million at 75% LTV (£750,000 borrowing), an extra 1% interest rate costs £7,500 per year -- significantly eroding the corporation tax saving.

You may also face early repayment charges (ERCs) on existing fixed-rate deals, adding further to the upfront cost.

Pros and cons of incorporation

Arguments for incorporating:

• Mortgage interest fully deductible against rental profits (Section 24 restriction does not apply in companies)
• Profits taxed at 19%-25% corporation tax vs up to 45% income tax
• More flexible profit extraction (salary + dividends)
• Better asset protection in some scenarios
• Easier to pass on to children via share transfer or wills

Arguments against incorporating:

• Immediate SDLT cost (often tens of thousands)
• Immediate CGT cost unless s162 applies
• Mortgage refinancing cost (higher rates + fees + ERCs)
• Additional compliance: annual accounts, corporation tax returns, potential payroll
• Dividend extraction taxed again -- CT then dividend tax -- meaning profit double-taxed before it reaches you personally
• ATED filing requirements if any property worth over £500,000

Running the numbers: a realistic break-even example

James owns two BTL properties worth £250,000 each (both fully owned, no mortgages) purchased for £150,000 each. His rental income is £24,000/year and he pays 40% income tax on it.

Transfer costs:

• SDLT: approx £22,000 (on two £250k properties with 3% surcharge)
• CGT: two gains of £100,000 each = £200,000 total; after AEA: £197,000 taxable; CGT at 24% = £47,280
• Total upfront cost: approx £69,280

Annual tax saving in company:

• Income tax at 40% = £9,600/year
• CT at 25% on £24,000 = £6,000/year
• Saving: £3,600/year (before extraction costs)

Break-even: £69,280 / £3,600 = approximately 19 years. In this case, without mortgages (where the Section 24 restriction bites hardest), incorporation is unlikely to pay off. The calculus is very different for high-LTV, high-rate taxpayers.

Sources

• HMRC: Stamp Duty Land Tax rates for additional residential properties
• HMRC: Capital Gains Tax on residential property
• HMRC: Incorporation relief (s162 TCGA 1992)
• gov.uk: Annual Tax on Enveloped Dwellings (ATED)
• Ramsay v HMRC [2013] UKFTT 176 (TC)