Owning and letting property together does not automatically create a partnership. HMRC views most joint landlords as co-owners; you only have a partnership if there’s genuine business organisation akin to a trade (e.g., multiple properties, systems, records, active management, possibly additional services).
A rental partnership should have:
Written partnership agreement; partnership bank account; branding/website; employees/contractors; documented decisions; separate books, filing a partnership return. HMRC’s manuals stress a “degree of business organisation,” not just passive receipt of rent.
Passive ownership (not “actively managed”)
- Owning a single buy-to-let and just collecting rent.
- Using an agent who does all the work.
- No real systems, records, or time commitment beyond occasional oversight.
HMRC tends to call this ‘mere investment’.
Actively managed rental business
This is where the owners organise and run the rental activity like a business, not just as investors.
For example:
- Multiple properties (often a portfolio) under common management.
- Keeping business accounts, a separate bank account, invoices, records, partnership tax returns.
- Regular involvement in tenant management (viewings, references, leases, rent collection, arrears handling).
- Overseeing repairs/maintenance rather than leaving everything to an agent.
- Employing staff or contractors to deal with cleaning, gardening, or maintenance.
- Offering additional services (e.g. furnishing, utilities, broadband, communal upkeep).
- Time commitment — In 2013 the Tribunal ruled that landlords should spend upwards of 20 hours per week spent running their rental portfolio.
The path to incorporation
There’s no statutory minimum period a partnership must exist before incorporating. What matters is that the partnership is real and the transfer to a company has commercial substance.
Taxes that may arise on incorporation
Capital Gains Tax (CGT)
- Incorporation relief: If you transfer the whole rental business to a company in exchange wholly (or mainly) for shares, gains on the property can be deferred into the base cost of those shares. This must be a qualifying business prior to incorporation.
Stamp Duty Land Tax (SDLT)
- SDLT partnership rules: If you move property from a genuine partnership to a company owned in the same proportions, then the SDLT charge could be reduced to nil in many common cases.
Corporation Tax after incorporation
- From 1 April 2023 the main corporation tax rate is 25%, with a small profits rate of 19% up to £50k and an effective rate of 26.5% between £50k and £250k.
Dividend and salary extraction
- A company pays tax on its profits (as discussed above) and the shareholders then need to consider how to draw money from the company. Directors/shareholders can take salary/bonus and/or dividends, all of which have separate tax implications.
ATED (Annual Tax on Enveloped Dwellings)
- After incorporation, companies holding UK residential property over £500,000 may face ATED annual charges.
Are there other reasons to incorporate?
Individuals are restricted to a 20% tax credit for finance costs on residential property, whereas companies can usually deduct interest in full
Practical considerations when moving to a company
Do not forget that it is not always about tax, or national insurance. Incorporation usually needs novating or refinancing mortgages into the company. Expect arrangement fees, valuation fees, legal fees, possible early-repayment charges, and (post-incorporation) different interest rates. There will also be additional compliance costs for running a company.
You will likely need new bank accounts, payroll registration (if paying salaries), VAT registration status review for any commercial property letting, board minutes, share allotments, PSC register etc.
As ever, professional advice should be sought in advance of making any changes. Please speak to Diane Nettleton at diane.nettleton@kilsbywilliams.com and 01633 653167 or your usual Kilsby Williams advisor to discuss this further.
