Personal ownership or a limited company after FHL abolition?

In short: For an individual owner of ordinary property lettings (not automatically a sole trade for tax purposes), the post-FHL mortgage-interest restriction has widened the after-tax gap between personal ownership and Ltd ownership. But retention vs extraction of profits, incorporation-transition costs, extraction taxes on dividends, and the April 2027 property income rate rise all matter. The right answer is model-dependent — do not rely on a property-count rule of thumb.

An individual owner of ordinary property lettings is not automatically a sole trade for tax purposes — property income is a distinct category. The question below is really personal ownership vs company ownership, not sole-trade vs Ltd.

The question was, under the FHL regime, often finely balanced. Mortgage interest was fully deductible in either structure, pension flexibility was better on the personal side, and the incorporation cost was hard to justify for smaller portfolios. The abolition of the FHL regime with effect from 6 April 2025 has moved the arithmetic for higher-rate borrowing operators.

The three changes that shifted the sums

1. Mortgage interest restriction now applies to personal ownership but not Ltd companies. For an individual landlord, mortgage interest is restricted to a 20% basic-rate tax credit. For a Ltd company, interest on borrowing taken out for the purposes of the property business is a fully-deductible cost against corporation tax profits, subject to the general loan-relationship rules and — for larger groups — the corporate interest restriction. Where borrowing has been used for a purpose other than the property business (for example a personal draw-down), the interest is not deductible even inside a company. For a higher-rate taxpayer with meaningful business-purpose borrowing, the personal-vs-company gap is a decisive one.

2. CGT on disposal now runs at up to 24% for personal disposals (Business Asset Disposal Relief was not abolished — it ceased to apply to FHL properties on abolition, and the BADR rate itself has risen to 14% for 2025-26 and 18% for 2026-27 for disposals that still qualify). A Ltd company disposal is a corporation tax matter, with corporation tax charged at 19% (small profits rate) on annual profits up to £50,000, marginal relief between £50,001 and £250,000, and 25% (main rate) above £250,000. Note the associated-company adjustment: where a company has associated companies (broadly, companies under common control), the £50,000 and £250,000 thresholds are divided by the number of associated companies plus one. Two associated companies each have their small-profits limit at £25,000 and their upper limit at £125,000. Short accounting periods also reduce the thresholds pro-rata. HMRC's marginal-relief guidance (CTM03900) sets out the adjustments. Corporation tax is then followed by a further tax event when funds are extracted (dividend tax or capital treatment on wind-up). The Ltd route is not automatically better on disposal — often it is not — but the personal route is materially worse than it was.

3. The April 2027 property income rate rise widens the gap further. The Autumn Budget 2025 confirmed a 2 percentage point rise on property income tax rates from 6 April 2027 — to 22% (basic), 42% (higher) and 47% (additional). Finance-cost credits will move to 22%. Corporation tax rates are unchanged. For a higher-rate borrowing operator, this widens the personal-vs-company gap in favour of the company from April 2027. Scotland's non-savings, non-dividend rates are devolved and set separately at each Scottish Budget — Scottish taxpayers should model against the Scottish rates confirmed for the relevant tax year, not automatically the UK rates.

Extraction taxes matter — a company decision is not a company forever

A company retains profits at corporation tax rates. When those profits are extracted to the owner, further tax is due. From 6 April 2026 dividend rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional), with the dividend allowance at £500. A comparison built only on corporation tax versus personal income tax, without extraction taxes, will overstate the Ltd advantage for owners who extract profits year on year.

The extraction-vs-retention question is often the deciding factor:

• Owner extracts most profits each year (income replacement): the personal-vs-Ltd gap is narrower than the headline corporation-tax rate suggests.
• Owner retains profits to reinvest (buy-and-hold, portfolio growth): the Ltd retention advantage compounds materially over a long holding period.

Model both cases — a Ltd may make sense on the retention profile and not on the extraction profile for the same portfolio.

The shape of the decision

The tax gap depends on many operator-specific variables. Property count on its own does not settle the answer. The variables that matter:

• Marginal income tax rate of the individual owner.
• Borrowing costs as a share of turnover.
• Other income sources (employment, investment, pension).
• Retention vs extraction intent for profits.
• Acquisition tax cost on incorporation (LBTT/LTT/SDLT plus any surcharge; CGT on the transfer unless incorporation relief applies).
• Mortgage refinancing cost on the transfer.
• Exit timeframe and route (planned sale, hold-and-pass-on, share sale).

Model on a case-by-case basis rather than applying a property-count rule.

The transition costs

Moving an existing personally-held portfolio into a Ltd company is not free. Main costs:

• Land-transaction tax on the transfer — SDLT / LBTT / LTT applies as if the company purchased the property; the additional-dwelling surcharge applies. On a portfolio of any size this can be the largest single transition cost. See our SDLT/LBTT/LTT piece.
• CGT on the transfer. The transfer is a disposal at market value. Section 162 TCGA incorporation relief can defer the gain, but has specific conditions: transfer of the whole assets of a business (other than cash) as a going concern in exchange wholly or partly for shares in the company. Passive holding of let property will not always meet the "business" test — HMRC challenges this on the specific facts, and the case law (including Ramsay v HMRC [2013] UKUT 226 (TCC) on the letting-business threshold) is fact-specific. Take specialist advice before assuming relief is available. For business transfers on or after 6 April 2026, section 162 relief must be claimed, with the details HMRC requires. The claim deadline is the first anniversary of the 31 January following the tax year of transfer — for a transfer in 2026/27, that is 31 January 2029. The business, asset-transfer and consideration conditions must also be satisfied. A claim deadline does not displace any applicable UK-property CGT reporting obligation on the transfer itself. HMRC's current position is set out in CG65735.
• Mortgage refinancing. Personal mortgages generally do not transfer to a Ltd company. New Ltd company mortgages typically carry higher rates and lower LTVs. Refinancing cost is often material.
• Ongoing corporate compliance. Corporation tax returns, statutory accounts, annual confirmation statements — real ongoing costs that scale differently to personal filing.

What operators should do

1. Get a case-specific structural review. The variables above need to be modelled against your own numbers.
2. Do not incorporate on a rule of thumb. The transition costs are hard to reverse.
3. On new acquisitions, model whether the property should be acquired directly into a new Ltd company rather than added to a personally-held portfolio. Building a company alongside is often a lower-friction path than incorporating an existing portfolio.
4. Consider extraction intent before assuming the Ltd option is cheaper. For income-replacement operators the personal route often still wins after extraction taxes.

Book a free consultation to model your specific position.

Sources: HMRC — Corporation Tax rates; HMRC — Dividend allowance and rates; Autumn Budget 2025 property income rate rise; Section 162 TCGA 1992 (incorporation relief); HMRC — Incorporation Relief.