Incorporation Quick-Check: How We Calculate

Published by PropMatch.ukon19 June 2026•7 min read

CalculatorsTaxLimited Companies

Incorporation Quick-Check: How We Calculate

Tax year coverage: 2025/26 – 2027/28

Estimates only — not tax, legal, or financial advice. Full disclaimer below.

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What This Calculator Does

This quick-check estimates whether moving a UK rental portfolio into a limited company could reduce tax over a chosen time horizon. It compares two ownership structures side by side using the same inputs:

• Individual ownership — rental profit is taxed as personal income, with Section 24 mortgage-interest restrictions.
• Limited company ownership — rental profit is taxed as corporation tax, with mortgage interest deductible as a business expense.

It models:

• Income tax on rental profit under individual ownership, including the 2027/28 rental income surcharge.
• Corporation tax on rental profit under company ownership, with marginal relief.
• Annual tax difference and cumulative tax savings across the selected horizon.
• A simple breakeven estimate using an upfront incorporation cost of approximately £3,000.

It does not model:

• Capital Gains Tax (CGT) on property transfer.
• Stamp Duty Land Tax (SDLT) on transfer to a company.
• Mortgage refinancing costs, lender consent, or changes in interest rates.
• Ongoing company running costs (accountancy, annual returns, etc.).
• Scottish income tax rates.
• Section 162 incorporation relief eligibility.
• Salary or dividend extraction strategy from the company.
• Complex ownership structures beyond two joint owners.

For step-by-step usage instructions, see the Incorporation Quick-Check Manual. To run the calculator, go to the Incorporation Quick-Check.

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How We Calculate

Step 1 — Determine the ownership structure

The calculator supports three ownership structures:

For joint structures, the calculator assumes two owners and splits the total annual rental profit equally. Each owner’s share is taxed using their own personal allowance and tax bands.

Step 2 — Calculate individual-structure tax

For each tax year:

1. Income tax — rental profit is stacked on top of other personal income and taxed progressively. The calculator uses the income tax bands and rates for the relevant year.
2. Rental income surcharge (2027/28 only) — a flat +2% surcharge applies to the taxable portion of rental profit after personal allowance allocation. Other personal income absorbs the allowance first; any remaining allowance shelters rental profit.
3. Mortgage interest tax credit — if the mortgage status is leveraged, a basic-rate credit is applied to mortgage interest: 20% to 2026/27 and 22% from 2027/28. This is a Section 24 simplification; the calculator does not require a mortgage interest amount.
4. Total individual tax = Income Tax + Rental Surcharge − Mortgage Interest Tax Credit.

Step 3 — Calculate company-structure tax

For each tax year:

1. Corporation tax — rental profit is taxed using the UK corporation tax schedule. Small profits rate (19%) applies below £50,000; main rate (25%) above £250,000; marginal relief applies between these thresholds.
2. Mortgage interest — if the mortgage status is leveraged, mortgage interest is treated as fully deductible before corporation tax.
3. Total company tax = Corporation Tax.

The quick-check does not model dividend extraction or salary extraction from the company.

Step 4 — Compute annual tax difference

For each tax year:

Annual Tax Savings = Individual Tax − Company Tax

A positive result means incorporation would reduce tax in that year.

Step 5 — Estimate breakeven and recommendation

1. Average the annual tax savings across the three tax years.
2. Multiply by the selected time horizon.
3. Subtract the estimated upfront incorporation cost of £3,000.

Cumulative Savings = (Average Annual Savings × Time Horizon) − £3,000

The recommendation is generated as follows:

If any high-severity risk flag is present, the recommendation is downgraded by one level. If the portfolio is jointly owned and leveraged, the recommendation is always borderline.

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Tax Constants and Rates

Note on 2027/28 income tax: The calculator does not use the globally uplifted 2027/28 income tax rates. Instead, it uses the 2026/27 income tax rates as a base and applies the +2% rental income surcharge only to taxable rental profit. This matches the Budget 2025 policy that the surcharge applies to rental income, not to other personal income.

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Worked Example

Inputs:

Calculation (2025/26):

1. Individual tax

   • Personal allowance: £12,570
   • Taxable rental profit: £25,000 − £12,570 = £12,430
   • All within basic rate band
   • Income tax: £12,430 × 20% = £2,486
   • Rental surcharge: £0
   • Mortgage interest credit: £0
   • Total individual tax: £2,486

2. Company tax

   • Taxable profit: £25,000
   • Below small-profits limit of £50,000
   • Corporation tax: £25,000 × 19% = £4,750

3. Annual tax savings = £2,486 − £4,750 = −£2,264 (incorporation costs more)

Breakeven estimate:

• Average annual savings across the three years: approximately −£2,014
• Cumulative savings over 10 years: (−£2,014 × 10) − £3,000 = −£23,140
• Recommendation: Unlikely beneficial

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Assumptions and Simplifications

1. Upfront incorporation cost is fixed at £3,000. This is a mid-range estimate based on ICAEW 2024 survey data (£2,000–£5,000). Impact: may overstate or understate true cost. When this matters: if your actual legal, valuation, and transfer costs differ materially.

2. Personal allowance is allocated to other personal income first. This is HMRC’s default ordering for the rental surcharge. Impact: may change the surcharge amount compared to a real return. When this matters: if you have significant other personal income.

3. Scottish income tax is not modelled. Scotland sets its own income tax rates and bands. Impact: results will be incorrect for Scottish taxpayers. When this matters: if you are a Scottish taxpayer.

4. Joint ownership assumes two owners with an equal 50/50 split. Form 17 elections and unequal beneficial interests are not modelled. Impact: may understate or overstate tax for unequal splits. When this matters: for married couples with a Form 17 election or for non-spouses with unequal shares.

5. Mortgage interest is not requested as a monetary input. For leveraged individual ownership, the calculator applies a basic-rate credit assumption. Impact: the actual mortgage interest tax credit may differ. When this matters: for highly leveraged portfolios.

6. No capital gains, SDLT, or ongoing company costs are included. These are often the largest practical costs of incorporation. Impact: may overstate the attractiveness of incorporation. When this matters: for almost all real-world decisions.

7. No dividend or salary extraction strategy is modelled. The company tax calculation ignores how you take money out of the company. Impact: actual total tax may differ significantly. When this matters: if you plan to extract profits rather than reinvest them.

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What This Calculator Does Not Cover

• Capital Gains Tax on property transfer to a company.
• Stamp Duty Land Tax on transfer to a company.
• Mortgage product fees, valuation fees, and lender consent requirements.
• Annual company running costs (accountancy, Companies House fees, etc.).
• Scottish income tax rates.
• Section 162 incorporation relief qualification.
• Pension, salary, and dividend planning.
• Multi-property sales, partial incorporations, or mixed-use portfolios.

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How Results May Differ From Professional Advice

A professional tax adviser may produce very different numbers because they will include:

• CGT and SDLT on the transfer.
• Your actual mortgage interest and refinancing terms.
• Ongoing company costs and profit extraction strategy.
• Your full income profile, pension contributions, and reliefs.
• Qualification for incorporation relief and other tax reliefs.

Use this calculator as a quick starting point, not a final answer. Always speak to a qualified tax adviser or accountant before incorporating a property portfolio.

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FAQ

How accurate is the breakeven estimate?

It is a rough guide. The £3,000 cost is a simplified estimate and excludes the largest real-world costs (CGT, SDLT, refinancing, ongoing company fees). Treat it as a directional signal, not a financial plan.

Why does the calculator show a tax saving for the company in some years but still recommend “unlikely beneficial”?

If the annual tax savings are small, the upfront cost of incorporation may never be recovered within the selected horizon. The recommendation combines cumulative savings, breakeven time, and risk flags.

Why does 2027/28 show higher individual tax than 2026/27?

Budget 2025 introduced a +2% rental income surcharge from 2027/28. This surcharge applies to the taxable portion of rental income after the personal allowance has been allocated to other income.

Does the calculator tell me whether I should incorporate?

No. It is an information-only quick-check. Incorporation involves legal, mortgage, tax, and commercial considerations that this tool does not cover. You should always take professional advice.

What does the “leveraged” mortgage status change?

For individual ownership, the leveraged status applies a basic-rate mortgage interest tax credit assumption. For company ownership, it treats mortgage interest as fully deductible. It also triggers a risk flag because refinancing may be required on incorporation.

What do the risk flags mean?

Risk flags highlight situations where the quick-check simplifications may be material. They do not block the calculation; they prompt you to seek professional advice for that specific issue.

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Disclaimer

This calculator provides estimates based on the tax constants and computation model described above. It is not tax, legal, or financial advice. Tax legislation changes regularly. The rates and thresholds shown were correct as at June 2026 but may have changed since. Always verify current rates with HMRC or a qualified tax adviser before making financial decisions. PropMatch.uk accepts no liability for decisions made based on calculator outputs.

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Version History

Further Reading

• Budget 2025 Wizard Manual
• Compare Tax Years Calculator
• Compare Tax Years Calculator: How We Calculate