Property portfolio incorporation and section 162 relief

By Simon Newsham, Solicitor and Chartered Tax Adviser. Technical position checked on 8 November 2026.

In short: transferring a rental property portfolio into a limited company can trigger capital gains tax and stamp duty land tax, even where no money changes hands. Section 162 incorporation relief may defer some or all of the capital gain, but only where the letting activity is a business and the transfer meets the statutory conditions. For transfers from 6 April 2026, relief must also be claimed.

This guide sets out what qualifies, the implementation risks that most often put relief in doubt, and what to review if HMRC questions an incorporation already completed.

Key points

• Section 162 of the Taxation of Chargeable Gains Act 1992 can defer capital gains tax when a property letting business is transferred to a company in exchange for shares.
• Relief applies to a business, not to a passive portfolio. HMRC and the tribunals look at the work actually done, not the number or value of the properties.
• Incorporation relief defers a gain into the base cost of the shares. It does not remove the gain, and it does not avoid SDLT.
• From 6 April 2026, relief requires a claim, due by the first anniversary of the 31 January following the tax year of transfer.
• Cash, director's loan account credits and assets left outside the company all reduce the gain that can be deferred.

What is section 162 incorporation relief?

Section 162 TCGA 1992 allows a person who transfers a business, as a going concern, to a company in exchange for shares to defer the capital gain that would otherwise arise on the transfer. The gain is not exempted: it is carried forward by reducing the tax base cost of the shares received, so it comes back into charge when those shares are sold.

Three terms matter in practice:

• Business is wider than trade. A property letting activity can be a business, but a purely passive investment is not.
• Going concern means the business is transferred intact, with the assets needed to carry it on.
• Non-share consideration is anything received other than shares, including cash and credits to a director's loan account. It limits how much gain can be deferred.

At a glance: the conditions for relief

Condition	What it requires
Transferor	An individual or partnership, not a company
What is transferred	A business, as a going concern
Assets	All business assets, apart from cash if cash is excluded
Consideration	Must include shares issued by the company
Business test	Genuine business activity, evidenced by the work performed
Claim	Required for transfers on or after 6 April 2026

Can landlords claim incorporation relief on a property portfolio?

Yes, a property letting business can qualify. Section 162 applies to a business, which is a wider concept than a trade, and whether a particular landlord is carrying on a business for this purpose depends on the facts.

Broadly, a person other than a company must transfer a business to a company as a going concern, together with all its assets apart from cash if cash is excluded. The consideration must include shares issued by the company to the person transferring the business. A collection of investment properties does not qualify simply because a company acquires it: the statutory conditions must be satisfied.

Our guide to setting up a property company for buy-to-let covers the wider commercial case for incorporation, including corporation tax and profit extraction.

Does the "20 hour rule" guarantee relief?

There is no statutory requirement to spend 20 hours a week managing a portfolio. The Upper Tribunal decision in Ramsay v HMRC [2013] UKUT 0226 (TCC) focused on the nature and extent of the activities as a whole.

HMRC's guidance on the meaning of business says it should accept qualifying business activity where an individual personally spends at least 20 hours a week undertaking activities indicative of a business. The same guidance recognises that fewer hours may be sufficient. The work actually performed matters; property values and the number of properties do not settle the question.

A useful review examines tenant management, repairs, compliance, administration and the division of responsibilities between the owner and any letting agent. Evidence should describe the actual work, rather than an estimate created simply to reach a particular number of hours.

Why implementation matters as much as qualification

Establishing a qualifying business is only part of the analysis. The documents and implementation must show that the business and the required assets were transferred to the company in exchange for the appropriate consideration. Keeping a business asset personally can put relief at risk.

Where legal title remains with an individual, specialist review is needed to establish whether the company genuinely acquired the relevant beneficial ownership and business. A declaration of trust, accounting entry or Companies House filing should not be treated as conclusive evidence of that result. The transaction must also be checked against the mortgage terms and any necessary third-party consents.

Cash and director's loan accounts can restrict relief

Receiving cash or a credit to a director's loan account as consideration can leave part of the gain taxable immediately. HMRC's published example illustrates how a loan account credit restricts the gain eligible for deferral.

Business borrowing needs separate analysis. Under Extra Statutory Concession D32, HMRC can disregard business liabilities taken over by the company when identifying non-share consideration. Personal liabilities are outside that treatment, and the concession does not remove the need to calculate the net cost of the shares correctly.

The practical question is how much of the gain can actually be deferred under the proposed terms. A promise that the owner can both defer every gain and withdraw a large loan account balance needs careful examination.

Worked example: how the deferral works

Assume an unencumbered qualifying business is worth £1.2 million, has aggregate chargeable gains of £500,000 and is transferred entirely in exchange for newly issued shares worth £1.2 million. Assume all other conditions are satisfied and full relief is available.

Item	Amount
Value of business and shares issued	£1,200,000
Cost base of business assets	£700,000
Chargeable gain deferred	£500,000
Base cost of shares after relief	£700,000

The £500,000 gain is deferred and the shares have a tax base cost of £700,000. If those shares are later sold for £1.2 million, that reduced base cost would produce a £500,000 gain before other adjustments or reliefs. This illustration excludes SDLT, borrowing, transaction costs and subsequent changes in value.

SDLT must be calculated separately

For property in England or Northern Ireland, a transfer to a connected company can attract SDLT by reference to market value. A gift, or a transfer for shares rather than cash, does not by itself avoid SDLT. Our SDLT advisory page explains how the charge is calculated on incorporations and other transfers.

If a partnership is involved, the specific SDLT partnership provisions require a separate analysis of the ownership and transaction history. Joint ownership alone should not be assumed to establish a partnership. The CGT conclusion cannot be used as a substitute for the SDLT calculation. Scotland and Wales have separate property transaction taxes in LBTT and LTT.

The claim requirement from 6 April 2026

For transfers on or after 6 April 2026, relief requires a claim containing the information HMRC requires. The claim deadline is the first anniversary of the 31 January following the tax year of transfer. A transfer in 2026-27 therefore has a claim deadline of 31 January 2029.

HMRC expects details of the business, the company, the shares issued and the relief computation. The claim will normally accompany the tax return for the year of transfer. This later claim deadline does not extend the normal return or payment deadlines; a separate UK property CGT return may also need to be considered.

Can HMRC approve the incorporation in advance?

Section 162 has no dedicated statutory advance clearance procedure. HMRC's non-statutory clearance service may address a genuine uncertainty about how legislation applies, but its guidance expressly excludes clearance on factual questions such as whether activities constitute a business. Do not assume that advance approval of the letting activity will be available.

What if HMRC challenges an earlier incorporation?

Start with the precise grounds of the challenge and any response or appeal deadline. Review the original documents, evidence of letting activities at the time, valuations, shares issued, borrowing and the tax calculations. An incorporation before 6 April 2026 needs to be considered under the rules then applicable; the new claim requirement does not retrospectively apply to it. Our tax disputes team regularly handles enquiries of this kind.

A review should distinguish disputes about the scale of the business from problems with ownership, implementation or the amount of relief. Those issues require different evidence and may lead to different conclusions.

Before transferring your portfolio

Assess the immediate CGT and SDLT costs alongside refinancing, professional fees and the ongoing tax cost of holding properties and taking money out of the company. Whether incorporation is worthwhile depends on your borrowing, income needs and plans for the portfolio.

Before seeking advice, prepare a property schedule with ownership, acquisition costs, current values and mortgage balances. Include a description of who manages the properties and any incorporation proposal or documents already signed.

Speak to Newshams about your property incorporation

Newshams Tax Advisers provides specialist advice on incorporation relief, complex SDLT issues and HMRC disputes. We can review a proposed transfer, provide a second opinion on an existing structure or advise on an HMRC challenge, working alongside your accountant and conveyancing solicitor.

Discuss your property incorporation with Newshams with a brief outline of your portfolio, the stage you have reached and any relevant deadline. We will discuss the advice required and provide a scoped fee proposal before starting work.

Sources and legislation

• Section 162, Taxation of Chargeable Gains Act 1992
• HMRC Capital Gains Manual CG65700 - introduction and operation of incorporation relief
• HMRC Capital Gains Manual CG65710 - conditions for incorporation relief
• HMRC Capital Gains Manual CG65715 - meaning of business and the 20 hour guidance
• HMRC Capital Gains Manual CG65745 - liabilities and Extra Statutory Concession D32
• HMRC Capital Gains Manual CG65750 - example of consideration wholly in shares
• HMRC Capital Gains Manual CG65760 - consideration credited to a director's loan account
• Ramsay v HMRC [2013] UKUT 0226 (TCC)
• Finance Act 2026, section 39 - new claim requirement for transfers on or after 6 April 2026
• HMRC Non-Statutory Clearance Service guidance

This article provides general information and is not advice on any particular transaction. The appropriate treatment depends on the facts and the law at the relevant time.