The End of Incorporation? Ever since S.24 FA2015[2] became the festering sore we all know and love, the drive to 'incorporation' has been significant. Setting aside for now the fact that the choice is not binary - 'personal v company' [there are several other options] many landlords have taken advice and/or followed their peers and incorporated under S.162 of the Taxation of Chargeable Gains Act of 1992 [TCGA 92] Despite repeated comments to the contrary, the legislation is demanding and there is opportunity aplenty for applicants to fall short. Many thousands have been under enquiry for some years now due to the mistaken belief that stamp duty land tax was not an issue. Many have been caught over latent gains. Few landlords factored in the cost of remortgaging to reflect the change in ownership, having to give up attractive pre-COVID fixed rates as well as provide even more security for lenders in the form of Directors' personal guarantees; with ever increasing protection for renters this is an issue likely to gain coverage in due course. S162 is a 'cut n paste' of the relevant sections of the 1971 Finance Act; in those days one could sit down with a friendly bank manager and see mortgages transferred without too much hassle or cost. The ongoing argument over the tax savings continues; there are those who believe the investment company does qualify for the lower rate of corporation tax - 19% up to £50,000 - and those who believe the rate to be 25%. Regardless of who is right, the claim that companies at 19% is far better than personal [top rate] at 45% fails to point out that the company rate quotes applies to profits and not to income withdrawals, whichever form[s] taken. The Budget last November brought news of a change to the process of incorporation; from April it is no longer a mandatory claim for relief [against any capital gain] but a claim for relief via the self-assessment return for the tax year in which the transfer from personal to company occurs. Professional valuations on properties, the likely need for tax adviser input and so on will add further cost. In the tax and property advice media, the change has been described as a "major CGT bombshell" In practical terms incorporation will now be an exercise based on risk rather than rules. The implications are most serious for landlords with latent gains - especially those having adopted the "partnership first, then incorporate" strategy. Latent Gains: where current borrowing exceeds the initial purchase price of the properties As is the case now, if relief is denied, unavailable or successfully challenged, there may be capital gains tax on the market value of the properties being transferred and SDLT, ultimately leading to a determination as to whether incorporation remains a viable option at all. If the claim is not made correctly there is the risk that the transfer may be treated as a disposal at market value. This may be the final straw for those who have weathered the previous storms and were looking forward to the better outcomes generally perceived by incorporating; there are other options and these should be sought out before making the soon to be, potentially perilous decision to incorporate.

Posted by Chris Haley at 2026-02-26 11:28:18 UTC