UK Budget 2026: Landlords Face 49% Income Tax: Is it time to consider a Limited Company?

Section 24: The additional pressure on mortgaged Landlords

For landlords who own residential investment properties personally, Section 24 continues to be a major consideration. Introduced progressively from April 2017, the mortgage interest restriction prevents individual landlords from deducting residential mortgage interest in full when calculating taxable rental profits. Instead, qualifying finance costs generally receive a basic-rate tax reduction, subject to statutory limits.

Under the new property income tax framework, this reduction is expected to operate at the new property basic rate of 24% from April 2027. Although this provides some additional relief compared with the current 20% rate, higher-rate and additional-rate landlords will still face a substantial difference between the rate at which their rental income is taxed and the rate of relief available for mortgage interest.

An illustrative example

Consider a landlord with the following annual figures:

Assuming all £50,000 of taxable property income falls within the additional-rate band, the illustrative 2027/28 calculation would be:

• Property income tax at 49%: £24,500
• Finance cost tax reduction at 24%: £6,000
• Net property income tax: £18,500
• Remaining cash profit after tax: £6,500

In this simplified example, the landlord pays £18,500 in tax despite generating only £25,000 in rental cash profit before tax. The effective tax burden on that cash profit is therefore 74%. This does not mean the statutory income tax rate is 74%. Rather, it demonstrates how the mortgage interest restriction can cause tax to represent a much larger proportion of actual cash returns.

The calculation assumes the finance cost reduction is available in full and ignores other personal tax considerations.

Is Limited Company Ownership becoming more attractive?

The new property income tax rates apply to individuals rather than rental profits earned by limited companies. A UK limited company generally pays Corporation Tax on its taxable profits, currently at rates of 19% or 25%, with marginal relief potentially available between the relevant thresholds.

Unlike individual landlords affected by Section 24, property investment companies can generally deduct qualifying mortgage interest when calculating taxable profits, subject to applicable corporate tax restrictions. This can make company ownership attractive, particularly where investors intend to retain profits within the company and reinvest them into additional properties.

However, company ownership is not automatically the most tax-efficient solution. Where shareholders withdraw profits personally, further taxation may arise through dividends or salary. Companies also incur additional accounting, compliance and administrative costs, and mortgage products may have different pricing and terms.

The decision should therefore consider the landlord’s overall investment strategy, rather than simply comparing headline income tax and Corporation Tax rates.

Can existing Landlords transfer their properties into a Limited Company?

For landlords who already own investment properties personally, transferring an established portfolio into a limited company may be worth exploring. However, such a transfer can trigger Capital Gains Tax and Stamp Duty Land Tax, even where the landlord ultimately owns the receiving company. There are two important areas of tax legislation that specialist advisers may consider.

Section 162 Incorporation Relief

Section 162 of the Taxation of Chargeable Gains Act 1992 can allow qualifying business owners to defer Capital Gains Tax when transferring an existing business to a limited company in exchange for shares. For a property investor, the crucial question is whether the letting activities constitute a genuine business for the purposes of the relief.

This depends on the actual activities undertaken, the organisation and scale of the operation, and the surrounding circumstances. Simply receiving rental income or owning several properties does not automatically establish eligibility.

Where the conditions are satisfied, qualifying gains may be deferred rather than immediately taxed. The deferred gains are reflected in the base cost of the shares received.

An important change from 6 April 2026 is that qualifying taxpayers must now make an explicit claim for Section 162 Incorporation Relief. It is no longer automatically applied to qualifying transfers.

Partnership relief and Stamp Duty Land Tax

A separate consideration is the SDLT treatment of property transferred from a genuine partnership into a company. Schedule 15 of the Finance Act 2003 contains special rules for property transactions involving partnerships. Depending on the structure, the partners’ interests and the applicable statutory calculations, these rules may reduce the SDLT otherwise payable when property is transferred into a company.

However, this is not an automatic exemption. A landlord who owns three or more properties does not automatically qualify for partnership treatment, nor does jointly owning properties necessarily establish a genuine partnership. The partnership must exist in substance, and the relevant statutory conditions must be satisfied. HMRC may scrutinise arrangements created primarily to obtain a tax advantage.

In particular, landlords should be cautious about arrangements marketed as a guaranteed route to transferring property portfolios into companies without CGT or SDLT.

Section 162 and the partnership SDLT provisions address different taxes. Qualification for one does not guarantee qualification for the other.

What should Landlords with three or more properties consider?

Landlords with three or more personally owned properties may have sufficient scale to justify a detailed review of their investment activities and ownership arrangements. However, three properties is not a statutory threshold for either Incorporation Relief or SDLT partnership treatment.

The relevant considerations include the extent of the landlord’s day-to-day business activities, whether the properties are operated through a genuine partnership, outstanding mortgages, unrealised capital gains, refinancing costs and future investment intentions.

For some landlords, continuing to own properties personally may remain appropriate. For others, particularly those operating substantial portfolios with significant mortgage borrowing, a properly structured company arrangement could provide long-term advantages. The key is to undertake a detailed financial and legal assessment before making changes.

What else did the Autumn budget mean for property Investors?

Beyond the increase in property income tax, landlords should continue to consider the wider financial environment. The Budget did not introduce a general reduction in Stamp Duty Land Tax for buy-to-let investors, meaning acquisition costs remain an important factor when expanding a portfolio.

Owners of higher-value properties must also consider the previously announced additional council tax charges for qualifying homes valued at £2 million or more, scheduled to take effect from April 2028. For company-owned residential properties, the Annual Tax on Enveloped Dwellings may also be relevant, although reliefs can be available for qualifying commercial property letting businesses.

Taken together with increased regulatory obligations under the Renters’ Rights Act 2025, these measures reinforce the importance of professional management, accurate financial forecasting and appropriate tax planning.

Our view at Romans & Partners

The 2026 Autumn Budget represents another significant change for landlords operating within the UK private rented sector. With property income tax potentially reaching 49%, it is increasingly important for investors to understand their true net returns after tax, mortgage interest, service charges, maintenance and other ownership costs.

We believe landlords should be reviewing their portfolios now, particularly where they own several properties personally or intend to expand their investments. At Romans & Partners, we work with UK and international landlords to maximise rental performance, protect their investments and provide professional lettings and property management services.

Where clients are considering restructuring their ownership arrangements, we recommend working alongside appropriately qualified property tax accountants and solicitors to assess the implications before proceeding.

If you would like to discuss the rental performance of your portfolio or review your future investment plans, please contact our team.

Disclaimer: This article provides general information based on the Autumn Budget announcements as at 29 October 2026. It does not constitute tax, legal or financial advice. Tax legislation and eligibility for reliefs depend on individual circumstances and may change. Landlords should seek independent professional advice before restructuring property ownership.