Property Company V Property Trust: A Tax Comparison

Holding Rental Property in a Company or a Trust: A Guide for Investors

By Sarah Bradford BA (Hons), FCA, CTA (Fellow)

A rental property can be held in various ways, each with its own set of tax implications. This report compares two of them: holding the property in a limited company, which pays corporation tax on its rental profits and gains, and putting it into a trust, which is taxed according to the type of trust and has its own inheritance tax regime.

Written by Chartered Accountant and Chartered Tax Adviser Sarah Bradford and updated for 2025/26, this guide looks at the 'tax events' that may arise under each structure, from stamp duty land tax on the purchase or transfer of a property, through the tax on rental income and on extracting profits, to capital gains on a sale and inheritance tax. Personal ownership and property partnerships are mentioned briefly for comparison.

What Is the Difference Between a Property Company and a Property Trust?

A property company is a limited company, set up at Companies House, that holds and lets property in its own name. It is a separate legal entity, distinct from its members, so its profits and gains are charged to corporation tax, and if the people behind it want to use those profits personally, they must first extract them from the company.

A trust is simply an arrangement for managing assets, such as property, for people. The settlor puts the property into the trust, the trustees become its legal owners and manage it in line with the trust deed, and the beneficiaries benefit from it. The tax that applies depends on the type of trust; the report concentrates on discretionary trusts and qualifying interest in possession (QIIP) trusts.

Company or Trust: The Tax Advantages and Traps

Tax changes affecting unincorporated landlords have led many to set up property companies. A company can deduct mortgage interest and other finance costs in full, whereas individual landlords only get relief as a 20% tax reduction, and the 25% main rate of corporation tax is significantly lower than the higher and additional rates of income tax. But the story does not end there: profits must be extracted for personal use, which may trigger further tax and National Insurance, and incorporating an existing portfolio means paying SDLT again.

A trust brings different trade-offs. Putting an investment property into a discretionary trust takes it outside the settlor's estate for inheritance tax purposes, and the capital gain on the transfer may be held over. But a lifetime inheritance tax charge at 20% arises to the extent that the value exceeds the settlor's nil-rate band, the trust pays income tax on rental profits at 45%, the interest relief restriction still applies, and ten-year anniversary and exit charges may follow.

There are advantages and disadvantages to each; there is no one size fits all. The reasons for using a property company, such as the lower corporation tax rates and escaping the interest relief restriction, are different from the reasons for using a trust, such as escaping inheritance tax and preserving the asset, so it is necessary to be clear about the primary objective at the outset. Poor decisions can be difficult to correct retrospectively.

What This Report Covers

Now in its fourth edition and updated for 2025/26, with worked examples and practical points throughout, this guide by tax specialist Sarah Bradford looks at the following key areas:

• The unincorporated property business
• Property partnerships
• Popularity of property companies
• Operating through a property company from the outset
• Incorporating an existing property business
• Tax treatment of property companies
• Advantages and disadvantages of operating as a property company
• The types of trust
• Tax implications of putting a property into trust
• Tax treatment of trusts
• Inheritance tax considerations
• Advantages and disadvantages of using property trusts
• Plus much more…

Setting up or incorporating a property company

The key decisions to take before the company is set up, including its directors and share structure. For an existing portfolio, the guide explains SDLT on the market value of the properties transferred, the rates from 1 April 2025 and when the 17% corporate rate applies, and incorporation relief, including consideration taken partly in cash and when it may be worth disclaiming the relief, with a worked example. For a new landlord buying in the company name from the outset, SDLT is payable at the higher residential rates even if the company owns only one property.

Corporation tax on rental profits and gains

How the 19% small profits rate, marginal relief and the 25% main rate apply for the financial year 2025, with a worked example. The guide covers the accruals basis that companies must use, the full deduction for interest and finance costs, and property losses, which can be carried forward but not back. It also explains how gains on a sale are charged to corporation tax with no annual exempt amount, but with the tax due nine months and one day after the end of the accounting period rather than within 60 days.

Extracting profits, ATED and property management companies

Why the optimal salary for 2025/26 is £12,570 where the personal allowance is available, how dividends are taxed after the £500 dividend allowance, and how an alphabet share structure allows dividends to be tailored to each shareholder's circumstances. Rent for a home office, benefits in kind and pension contributions are covered too, along with the annual tax on enveloped dwellings, the relief for qualifying property rental businesses, and the use of a property management company as a halfway house.

Putting a property into trust

The main types of trust and the requirement to register a trust with HMRC. The guide explains why gifting a property outright can leave the donor with a capital gains tax bill to pay within 60 days, and how holdover relief can prevent an immediate charge on a transfer to a discretionary trust, even where the nil-rate band covers the transfer, with a worked example. It also covers the lifetime inheritance tax charge and SDLT, which is not payable on a gift to a trust but is payable, with the 5% supplement, when a trust buys a property.

Trust income, gains and inheritance tax charges

How rental income is taxed in a discretionary trust, at 45%, and in a QIIP trust, at the basic rate of 20%, and how beneficiaries receive credit for the tax paid by the trustees and can reclaim any excess. The guide covers the interest relief restriction, capital gains tax at 24% with the trust's £1,500 annual exempt amount, and the ten-year anniversary and exit charges, and ends with the advantages and disadvantages of property trusts and the final considerations for choosing between the two structures.

Who Will Benefit From This Report?

The guide is perfect for property investors who want to better understand the considerations and implications of using a property rental company and putting a property into a trust, whether they are buying a rental property, thinking of incorporating an existing portfolio or considering a trust to take a property outside their estate for inheritance tax.

It is equally useful for accountants and tax advisers who help landlord clients decide how to hold their properties.

About Sarah Bradford FCA CTA

Sarah Bradford BA (Hons), FCA, CTA (Fellow) is a Chartered Accountant and Chartered Tax Adviser and director of Writetax Ltd, a company providing technical writing services on tax and National Insurance.

Sarah writes widely on tax and National Insurance and is a regular contributor to Business Tax Insider, Property Tax Insider and Tax Insider Professional. She is also the author of numerous Tax Insider guides, including Tax-Efficient Profit Extraction for Companies, Directors' Loan Accounts Explained, Tax Planning for Family Companies, How To Maximise Deductions For Business Expenses and 101 Business Tax Tips.

Read an excerpt from this report: Incorporating an existing property business.