Rising tax on rental profits from April 2027 is focusing minds for landlords and property investors. With a property business to run and financing costs to juggle, the question many ask is simple: should you move, or begin, your portfolio inside a limited company, or continue to hold personally and adapt your strategy?
Below, we set out the new rules, weigh the advantages and trade offs, and outline a practical pathway. As a local practice in Littleborough, we help clients across Greater Manchester and West Yorkshire model the cash impact before they commit. Good planning beats guesswork, and the earlier you check your numbers, the more options you keep.
What exactly changes from April 2027?
The government will separate property income tax from general income and raise the rates by two percentage points. From 6 April 2027 the basic property rate becomes 22 percent, the higher rate becomes 42 percent, and the additional rate becomes 47 percent12. A flat rate credit for finance costs, such as mortgage interest, will align with the property basic rate, so relief will be limited to 22 percent from the same date23. In short, cash tax on personally held rental profits will rise for many.
At the same time, dividend tax rates for those extracting profits from a company are set to increase by two percentage points from April 2026 at basic and higher bands, while the additional dividend rate remains unchanged3. The result is a new balancing act between corporation tax inside the company, then dividend tax when you pay yourself.
Why landlords consider a limited company
A limited company can be an effective wrapper for rental activity, especially for higher rate taxpayers with mortgages. Companies deduct finance costs fully when calculating profits for corporation tax, which can lower the taxable base compared with individuals where relief is capped at a 22 percent credit from 2027. Profits can be retained to fund deposits for the next purchase, delaying personal tax until extraction. That deferral can accelerate portfolio growth.
Then again, the picture is never one dimensional. You introduce company running costs, new compliance, and potential tax on the way out via dividends or salaries. Lenders may also price company mortgages differently. The right answer depends on your profit margin, growth plans, and how much cash you need personally each year.
Section 24
The rule that restricts individual landlords to a basic rate credit on finance costs, replacing full interest deductibility.
still bites for personal holdings. Inside a company, interest remains a trading deduction for most small to medium portfolios.
Quick comparison
Here is a simple, high level view of holding property personally versus through a company. It is a guide, not advice for your circumstances.
| Factor | Personal ownership | Limited company |
|---|---|---|
| Tax on profits | Property rates 22, 42, 47 percent from 20271 | Corporation tax bands, with small profits rate and marginal relief |
| Mortgage interest | Credit capped at 22 percent from 20272 | Generally fully deductible against profits |
| Cash extraction | Not applicable | Salary and dividends, dividend rates rising from April 20263 |
| Admin and costs | Self Assessment | Accounts, corporation tax return, payroll if using salary |
| Lending | Personal buy to let products | Special purpose vehicle products, different underwriting |
Tax on profits
Corporation tax bands, small profits rate and marginal relief
Mortgage interest
Usually fully deductible
Cash extraction
Not applicable
Benefits and drawbacks in more detail
Potential benefits
- Full interest deductibility: Companies usually deduct finance costs against profits, improving cash flow when rates are elevated.
- Retain profits for growth: Leave cash in the company to fund refurbishments and deposits, then plan tax efficient extraction later.
- Flexible pay mix: Combine modest salary with dividends. Optimise personal allowances and thresholds each tax year.
- Estate planning options: Different share classes and a family investment company can help future gifting strategy.
- Clear separation: Ring fence property risks from personal affairs, helpful for multi property portfolios.
Key drawbacks
- Extraction taxes: Dividends and salaries trigger personal tax. There is no magic tax free route, you are choosing the sequence and timing of taxation.
- Setup and running costs: Accounts, corporation tax returns, payroll, and statutory filings add admin and fees.
- Mortgage market differences: Lenders for special purpose vehicles may price loans differently and ask for personal guarantees.
- Moving existing properties: Incorporation can trigger stamp duty land tax and capital gains tax unless specific reliefs apply.
When a limited company tends to work well
These are common scenarios where the numbers often point toward a company solution. Every case is different, so we model it first.
- Higher rate taxpayer with mortgages: You expect the 42 or 47 percent property rates to apply after 2027, and finance costs are material.
- Reinvesting profits: You plan to leave profits inside the structure to fund further purchases or refurbishments rather than drawing them all out.
- Multiple owners: You want clear shareholdings and a shareholders’ agreement
A private contract between company owners that sets out voting rights, dividends policy, dispute processes, and transfer rules.
to organise decision making and profit splits. - Long horizon: You have a long run growth plan, so deferring personal tax and compounding inside the company is attractive.
- Professional management: You prefer clean separation between personal and business banking, insurance, and bookkeeping.
A simple numbers snapshot
Illustrative only, not advice. Suppose annual rental profit before interest is 40, and mortgage interest is 15. The comparison below shows how the tax base can differ.
| Scenario | Taxable profit | Notes |
|---|---|---|
| Individual at higher rate | 40 | Interest not deductible. Credit at 22 percent on 15 from 2027. |
| Limited company | 25 | Interest deducted in full, subject to usual rules. |
Individual at higher rate
40
Interest not deductible. 22 percent credit on 15 from 2027.
Limited company
25
Interest deducted in full, usual rules apply.
Important nuances to watch
Corporation tax bands
Companies pay corporation tax based on profit levels with a small profits rate for lower bands and marginal relief in between. For many property companies with modest profits, the average rate can be lower than top personal property rates. The break even point depends on leverage and extraction needs.
Dividend tax and allowances
Plan salary and dividend mixes each year to use personal allowances, dividend allowances, and pension contributions. Small changes to timing can save large sums.
Stamp duty land tax and capital gains tax
Moving property into a company is a disposal for tax, often with stamp duty on market value and potential capital gains. Reliefs such as incorporation relief can apply to genuine partnerships. Take advice early.
Practical next steps
Use a structured approach so you can decide with confidence. The checklist below mirrors how we guide clients through the decision.
How Pennine Accounting can help
We build forward looking tax models that compare personal ownership with a company structure, including the 2027 rate changes. That includes mortgage sensitivity, extraction strategies, and the specific picture for your loans and yields. We can then handle setup, registrations, and ongoing compliance so you can focus on growing the portfolio.
We also integrate your books through Xero for clear monthly dashboards. With that in place, you will see cash, profit, and tax at a glance. No surprises, fewer late nights, and decisions backed by current numbers rather than instincts.
Bringing it all together
If you are a higher rate landlord with mortgages, a limited company is worth serious consideration as property tax bands rise in April 2027. Companies usually deduct interest in full and allow you to retain profits for growth, then pay personal tax when you draw funds.
The best route depends on leverage, living costs, and plans for expansion. Get your numbers modelled before you buy or restructure, and you will make a confident choice.