If Section 24 has pushed your tax bill up, incorporating your rental portfolio into a limited company can look like an obvious fix. Mortgage interest becomes a normal deductible expense again, and Corporation Tax rates are lower than higher-rate Income Tax. Here at LJY Accountants we work with Scottish landlords weighing up exactly this decision, and the two costs that get missed most often are Land and Buildings Transaction Tax (LBTT) and Capital Gains Tax (CGT) — both of which can apply the moment you move existing property into a company, even though nothing about the property itself has changed.
Why Landlords Consider Incorporation
Since Section 24 removed full mortgage interest relief for property held personally, higher and additional-rate taxpayers in particular have seen their effective tax rate on rental profit climb. A limited company doesn’t have that restriction — mortgage interest is deducted as a normal business expense before Corporation Tax is calculated, and Corporation Tax rates are generally lower than higher-rate Income Tax. For landlords building a long-term portfolio, or planning to reinvest profits rather than draw them out personally, the company structure can be genuinely more efficient.
The complication is that “incorporating” an existing portfolio isn’t a paperwork exercise. In HMRC’s eyes, you are disposing of the properties from your personal name and the company is acquiring them — a transaction between two separate legal persons, even though you may own and control both sides of it.
The LBTT Bill Nobody Budgets For
Transferring Scottish property into a limited company triggers LBTT in the normal way, calculated on the market value of the property at the point of transfer — not the price you originally paid. Because a company already owning, or about to own, residential property counts as an “additional dwelling,” the transfer also attracts the Additional Dwelling Supplement (ADS), currently 8% on top of standard LBTT rates (raised from 6% in the 2025-26 Scottish Budget).
On a property worth £200,000, that’s £16,000 in ADS alone, before standard LBTT is even added. Across a multi-property portfolio, the LBTT and ADS bill from incorporating can run into tens of thousands of pounds, payable up front, in cash, before any of the longer-term tax saving starts to materialise.
Capital Gains Tax: The Other Cost
Transferring a property you already own into a company is treated as a disposal for CGT purposes, based on the property’s current market value rather than what you paid for it. If the property has grown in value since you bought it — which, for most Scottish landlords who’ve held property for several years, it has — CGT is due on that gain, on top of the LBTT and ADS above.
There is a relief that, in principle, can defer this: incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992. The problem is that it generally doesn’t apply to an ordinary buy-to-let portfolio. The relief requires you to be transferring a genuine business into the company, not simply a collection of let properties, and case law (including the well-known tribunal case Ramsay v HMRC) has set a high bar for what counts: significant, continuous, hands-on activity well beyond collecting rent and arranging the odd repair — often cited as somewhere in the region of 20 or more hours a week. Most landlords running a portfolio alongside a full-time job, even a sizeable one, are unlikely to clear that bar, which means the CGT bill usually can’t be deferred and falls due at the point of transfer.
Running the Numbers Before You Decide
None of this means incorporation is the wrong move — for a growing portfolio, or one where Section 24 is eating heavily into profit, the ongoing saving can still outweigh the upfront cost over time. But “upfront cost” needs to include LBTT, the 8% ADS, and CGT together, set against your actual numbers: how leveraged you are, your current tax band, how long you plan to hold the properties, and how you intend to draw profit out of the company. Rules of thumb aren’t a substitute for that calculation, and for Scottish landlords the LBTT and ADS layer makes the sums meaningfully different from the England and Wales equivalents often quoted online.
Our Property Tax Planning & Structuring page covers how we help Scottish landlords work through the LBTT, CGT and Corporation Tax trade-offs before committing to a restructure. Why not book a consultation to run your own numbers before deciding?
Frequently Asked Questions
Do I always pay LBTT and the Additional Dwelling Supplement when incorporating?
If the transfer involves residential property and the company will hold more than one dwelling (or already does), ADS normally applies on top of standard LBTT, calculated on the property’s market value at the point of transfer.
Can I avoid Capital Gains Tax by incorporating?
Not usually, for a passive buy-to-let portfolio. Incorporation relief is generally reserved for genuine property businesses with a significant level of hands-on activity, which most landlord portfolios don’t meet. CGT is normally payable on the transfer in the same way as any other disposal.
Is incorporation still worth it if I have to pay LBTT, ADS and CGT upfront?
It depends on your numbers — your tax band, how long you plan to hold the properties, and how much Section 24 is costing you each year. For some portfolios the ongoing saving pays back the upfront cost within a few years; for others it doesn’t. It’s worth modelling properly rather than assuming either way.
Does incorporation relief ever apply to landlords?
It can, but only where HMRC accepts you’re running a genuine property business rather than passively letting property — generally meaning substantial, regular, hands-on involvement well beyond arranging lettings and repairs. Most individual or part-time landlords won’t meet that threshold.