The tactic landlords are using to avoid higher taxes on rental income

Landlords will stop registering properties in their own name to reduce their tax bills, following a hike announced at the Budget, The i Paper has been told. Property owners have a “big incentive” to set up as a limited company after the tax rise on rental income set out by Chancellor John Healey, say experts. However, the change will not be an “escape hatch” for all landlords, they warned – particularly those with small portfolios who may face even higher costs by shifting to company status. Shorts Landlords are furious at Healey for doubling the 2 percentage point property tax rise which had been announced for 2027 by his predecessor Rachel Reeves last year. It means a 4 percentage point tax increase in total on rental income from April next year. As a result, landlords face an annual tax increase of almost £3,500, according to analysis by The Letting Partnership based on the average portfolio of around seven properties. It will raise around £2billion over the next five years for the cash-strapped Treasury, however, which has limited options for raising cash. The UK’s official Budget watchdog, the Office for Budget Responsibility (OBR) has also warned that the plans risk a “steady rise” in rents as landlords pass on extra costs to their tenants. ‘Big incentive’ to switch to company status Paul Shamplina, founder of Landlord Action, said the tax hike will push some owners – already angry about the boost to tenants’ protections offered by the Renters’ Rights Act – to sell up. “There’s been a steady exodus of smaller landlords who have had enough,” said Shamplina, who offers legal advice to investors. “The tax rise is a bridge too far for some who have been hanging on – so even more landlords will sell up.” However, those determined to keep going could pay less tax if they adopt a more business-like structure. Shamplina is aware of some landlords now looking at the limited company option. It means they switch from income tax to corporation tax in a bid to potentially reduce their overall bill to HMRC. David Fell, lead analyst at Hamptons estate agents, said the looming tax increase was “a really big incentive to look at the option of setting up as a buy-to-let limited company”. How it works Healey’s changes mean basic rate-paying landlords face 24 per cent income tax on rental income, up from 20 per cent. Higher rate taxpayers will see an increase from 40 to 44 per cent. On the face of it, landlords setting up as a limited company can reduce that tax bill. They pay corporation tax instead, which can be as low as 19 per cent for profits up to £50,000. Setting up as a limited company also allows owners to fully deduct mortgage interest payments against rental income before paying tax. It’s an allowance that individual landlords do not get. Chancellor John Healey doubled April’s property tax increase (Photo: RV/No 10 Downing Street/BlackFrame) For example, a landlord set up as a limited company renting a flat out for £1,000 a month, who has mortgage interest payments of £500, would only pay 19 per cent corporation tax on the £500 profit. It means a tax bill of £95. By comparison, a landlord with a flat registered in their own name has to pay tax on the full £1,000 rental income – £440 for the higher-rate payers paying 44 per cent from next year. They do get a tax credit on their £500 mortgage interest payments, however. The credit is calculated at the basic rate of property tax. So the landlord could deduct £120 from the £440 tax bill they face from April. But it still leaves with a tax bill of £320. Despite the potential savings, there are also headaches. Becoming a company effectively means selling your property to that company. So the owner has to pay stamp duty and capital gains tax on it for a second time. And the landlords registering as a limited company still have to pay either income tax or dividend tax if they withdraw profits from their new entity. ‘Not realistic’ for smaller landlords Chris Mason, chief operating officer at The Letting Partnership, which works with letting agents and landlords, said transferring to company status “can be a good option” and can be “more tax effective”. Healey’s tax rise announcement “will incentivise more people to start out this way, as limited companies, if they’re looking to invest in buy to let”, he said. Paul Shamplina warns some landlords will sell up because of the tax rise But he warned that making the switch can be financially painful for those already registered in their own name because of the capital gains tax and stamp duty. “It’s not necessarily realistic for smaller landlords with one or two properties,” said Mason. “It’s not a straightforward, simple escape hatch from the Budget tax rise for them.” Many landlords have already made the tax transition in recent years, however. Just over 41,000 buy-to-let companies were set up in the first eight months of 2026, according to Hamptons analysis. Just under half (49 per cent) were individual landlords switching over to company status, while 51 per cent were newly-bought properties set up as companies from the outset. Why it makes sense for bigger landlords Landlords with larger portfolios tend to be the most willing to push through any short-term pain, said Fell. “Generally, the more properties you have, the more tax efficient it gets over the long-term.” The benefits can be felt most by higher rate taxpayers, and those have a large amount of mortgage interest, said Fell. “Smaller landlords, without much mortgage interest, who are basic rate taxpayers, might be better off keeping it in their personal name,” he added. Barry Soraff, tax adviser at Xeinadin accountants, agreed that the move can work for larger landlords looking to build or expand their portfolio – especially those who have a large amount of mortgage borrowing. “But with landlords who have properties in their own name, there are huge obstacles to trying to switch – mainly capital gains and stamp duty,” said Soraff. “Even the extra costs of doing company accounts and having more admin means that if you have one or two properties it’s just not worth it.” Fear ‘squeezed’ landlords will hike rents London landlord Mohamed Ajami did have four properties – but recently sold one of them to keep up with extra costs – including painful interest rate rises and service charges. Landlord Mohamed Ajami says his profits have been squeezed “My yields have been squeezed to almost nothing,” Ajami told The i Paper. “Taxes going up doesn’t help. Having buy-to-let properties feels like a liability now.” Ajami said he was discussing with his accountant whether switching to limited company status would cut his tax bill – but it doesn’t appear to make sense for him. “There would be capital gains and stamp duty to pay. So there are too many hurdles.” Dan Wilson Craw of the Generation Rent campaign group dismissed concerns about landlords’ profits. He is worried some landlords “will try to hike rents and blame this tax increase” – calling on the Government to consider rent controls. Clara Collingwood, Director at the Renters’ Reform Coalition, backed the call. Many landlords “make profits that vastly outstrip alternative investments – they can absorb a moderate tax increase”, said Collingwood. “Renters on the other hand are barely staying afloat.” The Treasury has been contacted for comment.