Restructuring a UK property portfolio into a Ltd Company via a Partnership

As property investors grow their portfolios, many consider restructuring their ownership to maximise tax efficiency and future-proof their investments. One increasingly popular route is transferring residential property from individual ownership to a limited company, using a partnership as a transitional structure.

Here we outline key tax considerations, process, and potential benefits of this type of restructuring, based on current UK tax legislation.

Why consider moving property ownership to a limited company?

There are several tax-related motivations for restructuring property portfolios into a limited company:

• Corporation tax is lower than higher or additional rate personal income tax.
• Full mortgage interest relief is available for limited companies.
• Flexible profit extraction strategies, including dividends, pensions, and retained earnings.
• Potential for long-term inheritance and succession planning advantages.

However, the transfer must be carefully managed to ensure access to key tax reliefs and avoid significant upfront tax costs such as Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT).

Restructuring your property portfolio: A two-step process

The most tax-efficient way to move a personally held property portfolio into a limited company involves two main steps:

Step 1: Establish and operate a genuine property partnership

Jointly owned properties are transferred into a formal partnership.

• SDLT relief under Schedule 15 of the Finance Act 2003 may apply, provided all partners are connected and own the property in the same proportions.
• Gift relief may be available for CGT purposes if there is a gain on transfer to the partnership.
• Income continues to be taxed personally on each partner’s share.

Key Requirement: The partnership must operate as a genuine business, not just a passive investment vehicle. Active management is essential, typically requiring around 20 hours per week of property-related work such as managing tenants, maintenance, and rent collection.

This phase generally needs to last 2–3 years to satisfy HMRC that a bona fide business exists.

Step 2: Transfer the Partnership to a Limited Company

The final step is transferring the entire partnership to a limited company, with partners receiving shares in the same ownership proportions.

• Incorporation Relief under section 162 TCGA 1992 can defer CGT.
• SDLT relief applies, avoiding a significant tax liability (often tens of thousands of pounds).
• The properties are now owned by the limited company, unlocking long-term tax advantages.

Key tax considerations

Income Tax vs Corporation Tax

Personal income tax can be significantly higher than corporation tax. With strategic profit retention or extraction, tax savings can be substantial over time.

Mortgage interest relief

• Individuals: Limited to a 20% tax credit (Section 24 restrictions).
• Companies: Full mortgage interest deductibility.

This is a key advantage for higher rate taxpayers considering incorporation.

Capital Gains Tax (CGT)

• CGT is payable on transfers to connected parties, even if no money changes hands.
• Gift relief and incorporation relief can defer or reduce CGT if structured properly.

Stamp Duty Land Tax (SDLT)

• SDLT is usually payable when transferring property.
• Reliefs are available for transfers within partnerships and on incorporation, provided qualifying conditions are met.

Be warned, without these reliefs, SDLT can be a major cost.

Managing the transition and compliance

To maximise the chances of HMRC accepting the reliefs claimed:

• Keep detailed records of time spent managing the properties.
• Draft a formal partnership agreement.
• Avoid full delegation to letting agents – active self-management is crucial.
• Maintain consistent ownership proportions across each step.

Important: HMRC closely scrutinises these arrangements. Under “Spotlight 63”, HMRC has warned it will challenge artificial or passive structures. Reliefs could be withdrawn and penalties applied if the arrangement is found to lack substance.

Profit extraction from the Limited Company

After incorporation, the company will earn and retain the rental profits. Profit extraction strategies include:

• Dividends: Taxed at 8.75% (basic rate), 33.75% (higher), and 39.35% (additional).
• Salary: Up to the personal allowance (£12,570 for 2025/26) may be tax-free.
• Pension contributions: Tax-deductible for the company, and tax-efficient for long-term planning.
• Leaving profits in the company: Useful for wealth accumulation and future tax planning.

Annual Tax on Enveloped Dwellings (ATED)

If a company owns residential property worth over £500,000, it may be subject to ATED. However, if properties are rented to third parties on a commercial basis, an annual relief declaration can be filed to avoid the tax.

Is this structure right for you?

This strategy can result in significant long-term tax savings, particularly for higher rate taxpayers or those looking to grow their portfolios. However, it requires careful planning, a multi-year time commitment, and full compliance with HMRC’s criteria.

Pros:

• Long-term tax savings
• Full mortgage interest relief
• Flexible profit extraction
• Potential inheritance tax planning advantages

Cons:

• Multi-year process
• Risk of HMRC challenge
• Complex compliance and administration

Need personalised advice?

Each investor’s circumstances are unique. If you are considering restructuring your property portfolio into a limited company, our expert tax advisers can help assess your eligibility, quantify the potential benefits, and guide you through each stage of the process.

Get in touch with our tax advisory team for a free consultation.