Incorporation Relief is changing: What property owners need to know

The 2025 Budget confirmed an important change for property owners looking to incorporate. Incorporation Relief is an automatic relief, which defers capital gains arising on transferring a business to a limited company in exchange for shares. The gain effectively reduces the tax cost of the shares, meaning a gain will only arise if the shares are sold in the future.

From 6 April 2026, Incorporation Relief will no longer apply automatically. Instead, anyone transferring a qualifying property business into a company will need to make a formal claim in their Self-Assessment return for the tax year in which the transfer takes place.

Historically, the relief applied without the need to make a claim, as long as the conditions were met. Taxpayers only needed to report the disposal on their return, and the relief took effect without any formal claim.

From April 2026, HMRC will expect more information upfront, including:

details of the transaction
the nature of the business transferred
supporting tax calculations

Why have HMRC done this?

This gives HMRC clearer visibility over incorporations at the point of filing, rather than relying on later enquiries. It is largely an administrative change, but it means property owners will need to be more careful with their reporting.

What does this mean for property businesses?

There is a greater compliance requirement, but the risks should be manageable with the right advice. Claims must be set out correctly in the return and supported by full disclosure. Missing information could lead to enquiries or penalties for incorrect filings.

As a firm, we already recommend providing detailed disclosure when advising on incorporations. In practice, this means our approach is already aligned with what HMRC will expect once the legislation changes. The main difference therefore being that a claim must be formally notified. The current opt-out will be repealed on the basis if no claim is made then the relief will not apply.

Will property owners rush to incorporate before April 2026?

There has been some speculation that people may try to incorporate before the deadline to avoid the new reporting requirement. In practice, we do not expect to see a surge. The change does not alter the actual tax outcome; it simply adds a formal claim. Incorporating early solely to sidestep reporting would be unwise and risks raising questions about motive. With proper advice, the claim should remain straightforward and should not, on its own, influence the timing of a genuine commercial decision.

Should property owners consider other options?

Upcoming increases to dividend and property tax rates (from April 2026 and April 2027 respectively) might lead some people to review their structure. However, because both unincorporated and incorporated businesses are affected by these rises, the changes are unlikely to materially alter the decision to incorporate. Instead, taxpayers should continue to look at the usual factors:

long-term commercial plans
financing and mortgage considerations
profit extraction needs
future Capital Gains Tax exposure on shares vs property

The upcoming changes should not materially shift the typical pros and cons of incorporating a property business.

How we can help

Given the added reporting requirements from April 2026, it will be important to take reasonable care when preparing your tax return. Our dedicated property specialists advise on incorporations regularly and ensure that clients meet the legislative requirements, including the enhanced disclosures that will soon be mandatory. We can help property owners review whether incorporation is right for them and prepare the necessary calculations and claims.

If you are considering incorporating your property business, or would like to understand how the changes affect you, please get in touch using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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