Property investors increasingly utilise Buy-to-Let Limited Companies, commonly known as Special Purpose Vehicles (SPVs), to structure their portfolios efficiently. In the 2026/27 tax year, the legislative landscape firmly incentivises corporate ownership for landlords carrying high debt levels or expanding their operations, primarily through generous interest deduction rules and lower headline tax rates.
The 100% Mortgage Interest Deduction
The most significant driver for incorporating a property portfolio remains the unrestricted deductibility of finance costs. Section 272A of the Income Tax (Trading and Other Income) Act 2005 (ITTOIA 2005) completely denies income tax deductions for mortgage interest on residential property for individuals, restricting them to a basic rate tax reduction. [doc:70 / extract:#71]
Crucially, the legislation explicitly exempts companies from this restriction. Section 272A(5) confirms that the restriction does not apply when calculating the profits of a property business for the purposes of charging a company to Corporation Tax. [doc:70 / extract:#71] Therefore, Buy-to-Let Limited Companies can deduct 100% of their mortgage interest and finance costs as allowable business expenses before paying tax.
Corporation Tax Rates for 2026/27
When an SPV generates rental profits, it pays Corporation Tax rather than Income Tax. For the 2026/27 tax year (covering the financial years 2026 and 2027), the main rate of Corporation Tax is 25%. [doc:1 / extract:#43] [doc:41 / extract:#63]
However, the government provides a standard small profits rate of 19% for companies with profits under £50,000, with marginal relief applying to profits between £50,000 and £250,000. [doc:1 / extract:#40] [doc:41 / extract:#42] [doc:44 / extract:#48]
Generally, “close investment-holding companies” (CIHCs) cannot access the small profits rate and must pay the main 25% rate regardless of their profit level. [doc:44 / extract:#45] Fortunately, section 18N of the Corporation Tax Act 2010 (CTA 2010) explicitly rescues Buy-to-Let SPVs from this trap. A company is not a CIHC if it exists wholly or mainly for the purpose of making investments in land which is let commercially to unconnected parties. [doc:22 / extract:#95]
“The candidate company exists for a permitted purpose so far as it exists… for the purpose of making investments in land, or estates or interests in land, in cases where the land is, or is intended to be, let commercially.” [doc:22 / extract:#95]
As long as the SPV lets the properties commercially to independent tenants, it qualifies for the 19% small profits rate on profits up to £50,000. Landlords must note that if they operate multiple SPVs, the £50,000 and £250,000 thresholds are divided by the total number of associated companies. [doc:22 / extract:#110] [doc:44 / extract:#45]
Table: Corporate vs Individual Property Taxation (2026/27)
| Tax Feature | Buy-to-Let Limited Company (SPV) | Individual Landlord |
|---|---|---|
| Finance Cost Deduction | 100% deductible as an expense | Restricted (basic rate credit only) |
| Headline Tax Rate | 19% (profits under £50k) up to 25% | 20%, 40%, or 45% based on income |
| Personal Allowance | Not applicable | £12,570 (frozen to 2030/31) |
Stamp Duty Land Tax (SDLT) Surcharges
Transferring or purchasing property through a corporate wrapper triggers specific SDLT rules. The Finance Act 2025 significantly increased the SDLT burden for companies.
When a company purchases a residential property, it automatically triggers the higher rate for additional dwellings (HRAD) surcharge, which increased to 5% above the standard residential rates for transactions on or after 31 October 2024.
Furthermore, section 53 of the Finance Act 2025 increased the flat rate of SDLT for purchases of high-value residential property (over £500,000) by non-natural persons from 15% to 17%. [doc:1 / extract:#2] [doc:8 / extract:#9] However, genuine Buy-to-Let SPVs typically escape this punitive 17% flat rate by claiming relief as a property rental business, meaning they revert to paying the standard residential SDLT rates plus the 5% surcharge. [doc:10 / extract:#11]
Annual Tax on Enveloped Dwellings (ATED)
Companies owning UK residential property valued over £500,000 must navigate the Annual Tax on Enveloped Dwellings (ATED) regime. [doc:140 / extract:#141]
While the SPV must file an annual ATED return for properties breaching this threshold, it will not usually pay the tax charge. Dwellings used for commercial property rental businesses qualify for full relief from the ATED charge, provided the properties are let to unconnected third parties on a commercial basis. [doc:144 / extract:#145] [doc:10 / extract:#11] The SPV must actively claim this relief in an annual ATED return to avoid penalties.
Extracting Profits in 2026/27
While SPVs provide excellent tax efficiency for retaining and reinvesting profits, extracting those profits into the director’s personal hands triggers income tax.
For the 2026/27 tax year, the Finance Act 2026 increased dividend tax rates. Section 4 of the Finance Act 2026 raised the dividend ordinary rate to 10.75% and the dividend upper rate to 35.75%. [doc:41 / extract:#114] Additionally, section 72 of the Finance Act 2026 extends the freeze on the Personal Allowance (£12,570) and higher rate threshold until the 2030/31 tax year. [doc:41 / extract:#119] Therefore, landlords must carefully plan their dividend extractions to avoid creeping into higher tax bands, compounding the overall effective tax rate on their rental income.
Consider researching the Capital Gains Tax (CGT) incorporation reliefs available under section 162 TCGA 1992 for landlords looking to transfer existing personal portfolios into an SPV structure without triggering immediate tax charges.
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