6 months to switch to Ltd company status before income tax rises

Paying tax on your rental  income is part and parcel of being a landlord. How much you pay depends on your tax bracket but also on how you ‘hold’ your buy-to-lets – as a private individual or as a limited company. 

If you’re a landlord with investment properties in your personal name, there’s a looming deadline you should know. The rate of tax applied to property income changes in six months.

Landlords in England and Wales who hold their buy-to-lets as a private individual will pay 2% more from 6th April 2027. The income tax rates are changing as follows:

Before 6th April 2027

• basic rate at 20%

• higher rate at 40%

• additional rate at 45%

From 6th April 2027

• basic rate at 22%

• higher rate at 42%

• additional rate at 47%

Scotland retains devolved power to set its own property income tax thresholds. Wales also retains this right and may set its own property income tax rate in 2027, should it choose to operate outside the Government’s parameters.

Should I switch my buy-to-lets to a limited company?

It can make financial sense to hold buy-to-lets within a limited company instead of personally. This can be especially true for higher and additional rate income tax payers.

Instead of paying income tax on property income, landlords with limited companies pay corporation tax. Currently, corporation tax rates are lower than income tax rates, as follows:

• Small profits rate (companies with profits under £50,000) 19%

• Main rate (companies with profits over £250,000) 25%

Although the current Government had a manifesto pledge to hold current corporation tax rates until the end of Parliament (2029), it is wise to plan for change. With this in mind, tax planning advice should always be sought when considering switching from private landlord status to a limited company.

Switch to a limited company before income tax increases

Is it possible to switch your buy-to-lets from personal ownership to a limited company before income tax increase takes effect? The answer is yes but it’s an administrative-heavy process that needs careful financial planning.

If a financial adviser agrees there are long-term tax efficiencies to switching the buy-to-let properties you already own to a limited company, familiarise yourself with what steps are required.

How to start up and register a limited company

• Agree a company name, appoint one director and at least one shareholder

• Create Articles of Association, which is an internal rulebook for running your business

• Register with Companies House

• Obtain your five-digit number SIC (Standard Industrial Classification), which is assigned by the Office for National Statistics

Selling your buy-to-lets to your new company

There is no easy way to transfer your personally-held buy-to-lets to a limited company. The process involves selling your current property investments to your new limited company. The good news is you don’t have to sell on the open market, so it shouldn’t take months to complete the process.

Costs involved when selling to a limited company

The process does, however, involve conveyancing and associated legal fees. When researching solicitors, be sure to establish their completion timeframes when dealing with personal-to-limited company property sales.

Additionally, HMRC treats personal-to-limited company property sales as a standard market-value transaction. You’ll need to get up-to-date property valuations as stamp duty will be payable on any transactions.

Another financial consideration is the cost of switching any personal buy-to-let mortgage to one compatible with a limited company. The choice of buy-to-let mortgages open to limited companies can be reduced and the interest rate much higher, so research is required before you make a decision. 

Timescales to expect

While your buy-to-let’s won’t be on the open market trying to find a buyer, limited company registration, refinancing and conveyancing all take time. A conservative estimate to complete these steps is 12 weeks but it’s sensible to build in a buffer.

Do your sums before switching

Corporation tax savings can be outweighed by the cost of selling buy-to-lets to a limited company, especially as many landlords forget they may have to pay capital gains tax on any profit made on a sale. This is true even though they are effectively selling the property to themselves. 

You should run your figures past a tax adviser and a mortgage broker before committing to a limited company.

If there are financial efficiencies to switching, start the process now to complete before the 6th April 2027 property income tax change.