How an SPV Limited Company Sidesteps Section 24, and When It Actually Pays

Section 24 restricts a residential landlord to a basic-rate tax credit on mortgage interest, so a higher-rate landlord is taxed on rent they never kept as profit. A limited company is not caught by that rule at all. A company deducts its finance costs against profit in the normal way and pays Corporation Tax on the net figure, which is why moving a geared portfolio into a Special Purpose Vehicle keeps coming up as the structural response to Section 24. The catch is that escaping the restriction and saving money are not the same thing, and for a large number of landlords the transfer costs more than the restriction ever will.

The 20% basic-rate credit that defines Section 24 is the reference point for the whole calculation. The gap between the rate at which rent is taxed and the 20% at which interest is relieved is the annual cost the company structure is trying to recover, and that gap only exists for higher-rate and additional-rate landlords. For a basic-rate landlord the credit already matches their marginal rate, so incorporating to bypass a restriction that is not biting achieves nothing.

Why a company is outside Section 24

Section 24 of the Finance (No. 2) Act 2015 was drafted to restrict finance-cost relief for individuals letting residential property. It does not touch companies. A company that holds rental property computes its taxable profit as rent less all allowable costs, and finance costs are an allowable cost like any other. There is no reducer, no cap and no basic-rate restriction. The company pays Corporation Tax on what is left, and only when profit is drawn out does a second layer of personal tax arise.

That single difference is what makes the structure attractive to a heavily geared higher-rate landlord. Where interest swallows a large share of the rent, the individual is taxed on a profit figure inflated by the disallowed interest while the company is taxed on the real net figure. HMRC set out the mechanics of the individual restriction in its guidance on tax relief for residential landlords, and the contrast with company treatment is the entire case for incorporation.

The company pays Corporation Tax, not income tax

Inside a company, rental profit is charged to Corporation Tax rather than income tax. For the financial year 2026 the small profits rate is 19% where profits are £50,000 or less, and the main rate is 25% where profits reach £250,000, with Marginal Relief tapering the rate between those two thresholds. Most single-portfolio SPVs sit at or near the 19% rate, well below the 40% or 45% an individual higher-rate landlord faces on the same profit.

The comparison is not as clean as 19% against 40%, because company money is not the landlord's money until it is extracted. Profit left inside the company to pay down debt or buy the next property is taxed once, at the Corporation Tax rate. Profit taken out as dividends is taxed again in the shareholder's hands, at 10.75%, 35.75% or 39.35% from 6 April 2026 depending on their band, above the small dividend allowance. The structure works best where profit is retained and reinvested, and works least well where the landlord needs to strip the cash out every year to live on.

What the transfer actually costs

Moving an existing property into a company is a disposal at market value and an acquisition by the company, and both sides carry tax. On the way out, the individual makes a Capital Gains Tax disposal; on the way in, the company pays Stamp Duty Land Tax. Neither is trivial on a Harrow portfolio where individual property values commonly sit well above the national average.

• Stamp Duty Land Tax on the transfer is charged at the standard residential rates plus the 5 percentage-point surcharge that applies to companies acquiring residential property, following the increase that took effect on 31 October 2024. On a mid-value Harrow property this alone runs into tens of thousands of pounds.
• Capital Gains Tax arises on the difference between the market value at transfer and the original cost, at 18% or 24% for residential property, unless a relief defers it.
• Most buy-to-let mortgages cannot simply move across, so the company usually has to refinance, with new lender fees, valuations, legal costs and possible early repayment charges on the existing loans.

Section 162 Incorporation Relief can defer the Capital Gains Tax where the lettings amount to a genuine business rather than passive investment, typically evidenced by substantial active management of around twenty hours a week. It defers rather than cancels the gain, rolling the cost base into the shares, and it does nothing for the Stamp Duty charge. The reliefs, the qualifying tests and the wider incorporation decision are set out in the property incorporation and SPV guide.

The break-even that decides it

The honest way to test incorporation is to put the recurring saving against the one-off and ongoing costs. The recurring saving is the Section 24 penalty the landlord suffers each year as an individual, which is broadly the disallowed interest multiplied by the difference between their marginal rate and the 20% credit. The costs are the Stamp Duty and refinancing paid once on transfer, plus the extra compliance the company carries every year.

1. 1Estimate the annual Section 24 cost: total residential mortgage interest, multiplied by the gap between your marginal income tax rate and 20%.
2. 2Add up the one-off transfer costs: the 5% Stamp Duty surcharge exposure, refinancing fees, and any Capital Gains Tax not deferred by Section 162.
3. 3Add the ongoing company overhead: Corporation Tax return preparation, statutory accounts, Companies House filing and bookkeeping, commonly £1,000 to £1,800 a year more than holding the same portfolio personally.
4. 4Divide the one-off costs by the annual saving to find the payback period, then judge whether the holding horizon comfortably exceeds it.

Where the payback lands inside three to five years and the landlord intends to hold and reinvest for the long term, incorporation usually earns its keep. Where the payback stretches past a decade, or the landlord is a basic-rate taxpayer, or the portfolio is low-geared so there is little interest to shelter, the friction outweighs the benefit and the structure quietly loses money.

When incorporation is the wrong answer

The structure fails its own test more often than landlord forums suggest. A low-geared portfolio has little disallowed interest to relieve, so the annual saving is small and never recovers the transfer cost. A landlord who needs every pound of rent to live on triggers the second layer of dividend tax immediately, eroding the Corporation Tax advantage. And a landlord who fails the Section 162 activity test pays the Capital Gains Tax up front, which can turn a marginal case into a clearly negative one.

For many portfolios the better response to Section 24 is not incorporation at all but one of the lighter-touch moves: shifting income to a lower-rate spouse, reviewing the debt where a genuinely commercial or mixed-use element exists as covered in the guide to restructuring portfolio debt, or paying down the most expensive borrowing. These sit alongside incorporation in the Section 24 strategies hub and are usually cheaper to implement.

The part-incorporation middle ground

Incorporation is rarely all or nothing. A common answer for a mixed portfolio is to move only the most heavily geared properties, where the Section 24 cost is highest, into a company, and to keep low-geared holdings personally where the individual annual allowances and the potential for future main-residence reliefs still have value. New acquisitions can be bought directly through the SPV from the outset, avoiding the transfer taxes entirely because there is no existing personal ownership to shift. The rising cost of Section 24 as rates move, which the guide to what geared portfolios should do about the April 2027 rate rise examines, tends to push more of a portfolio across this line over time.

Common questions about SPVs and Section 24

Does an SPV really escape Section 24 completely?

Yes. Section 24 restricts finance-cost relief for individuals only. A company deducts its mortgage interest against profit in full and pays Corporation Tax on the net, so property held in an SPV is outside the restriction entirely.

Is it worth incorporating a small buy-to-let?

Usually not. A single low-geared property produces a small Section 24 saving that rarely recovers the Stamp Duty, refinancing and ongoing company costs. Incorporation tends to pay only for heavily geared higher-rate portfolios held for the long term with profits reinvested.

Will I pay Stamp Duty moving my own property into my own company?

Almost always. The company acquires residential property at market value and pays Stamp Duty Land Tax at the standard rates plus the 5 percentage-point surcharge for companies, even though you own both sides of the transaction. This is one of the largest single costs of incorporating an existing portfolio.

Can I avoid the Capital Gains Tax on transfer?

Section 162 Incorporation Relief can defer the gain where your lettings amount to a genuine business with substantial active management, rolling the cost base into your shares rather than cancelling the tax. It does not remove the Stamp Duty charge, and HMRC scrutinises the business test, so it should not be assumed without advice.

Whether an SPV pays comes down to your gearing, your marginal rate, how long you plan to hold, and whether you can leave profit inside the company. A specialist can run the break-even for your specific portfolio, model the Stamp Duty and Section 162 position, and tell you honestly whether the structure saves money or just adds cost. Our SPV and property company accountants do exactly this modelling; send your portfolio details through the form below for a no-obligation view.