Landlords who moved their rental property portfolios into limited companies, a strategy widely recommended by accountants and advisers in recent years, could be sitting on unexpected Capital Gains Tax liabilities, according to a warning reported by Property118. The issue centres on a specific and previously common part of the incorporation process: where a landlord's personal or partnership mortgage was paid off using new borrowing taken out by the company itself at the point of incorporation. What was long presented as a standard, low-risk step now appears to carry tax consequences that many landlords and even their advisers did not anticipate.
This matters because incorporation has been one of the most heavily promoted tax planning strategies for landlords over the past decade, particularly since changes to mortgage interest relief made holding properties personally less attractive for many higher-rate taxpayers. If a routine part of that process turns out to trigger a Capital Gains Tax charge that wasn't properly flagged at the time, landlords could now be facing bills they never budgeted for, potentially years after the transaction took place.
What actually happened during incorporation
When landlords incorporate, they typically transfer properties held personally or in a partnership into a limited company. As part of that process, it became common practice for the company to take out new borrowing and use it to repay the original personal or partnership mortgage. This was generally treated as a straightforward refinancing step rather than something with independent tax significance. The warning highlighted by Property118 suggests that, in at least some cases, this repayment mechanism may not have been as tax-neutral as landlords were led to believe, opening the door to Capital Gains Tax exposure that wasn't part of the original financial planning.
Why this matters for landlords now
For any landlord who incorporated using this approach, the practical risk is a tax bill arriving well after the transaction is complete, at a point where the cash to pay it may not be readily available since the original sale proceeds were never actually received in cash form. Because incorporation is often irreversible or extremely costly to unwind, landlords in this position may have limited options beyond finding the funds to settle any liability that HMRC decides applies. This is also a reminder that tax advice given at the time, however conventional it seemed, isn't a guarantee against a later challenge or reinterpretation.
What landlords should do next
Anyone who incorporated a property business in recent years, particularly where a new company mortgage was used to clear an existing personal or partnership loan, would be sensible to go back to their accountant or tax adviser and specifically ask whether this issue applies to their situation. It's worth getting this checked proactively rather than waiting for a query from HMRC. Landlords should also consider what their options would be for raising funds quickly if a liability turned out to be due, since Capital Gains Tax bills can be substantial and are typically expected to be settled within a set timeframe.
