Writing in Property118, Mark Alexander points out that most landlords focused on the announced rise in property income tax rates following the 2025 Budget. However, a far more significant and risk-introducing change was deliberately concealed within an obscure technical paper, with no mention in the Chancellor’s speech or official summaries.

The Government has quietly rewritten the rules for one of the most important tax reliefs used by landlords for business restructuring.

The Hidden Change: Incorporation Relief Is No Longer Automatic

The Government’s technical policy paper, “Capital Gains Tax: Incorporation Relief claims,” confirms a major shift in the treatment of Incorporation Relief under Section 162 TCGA 1992.

From 6 April 2026, Incorporation Relief will no longer apply automatically; landlords will be required to actively claim the relief.

This simple administrative change introduces substantial new procedural risks for every landlord considering transferring a property business into a company.

What Incorporation Relief Does Today

Incorporation Relief allows a landlord to defer Capital Gains Tax (CGT) when they transfer a genuine property rental business (not just passive investment) into a company in exchange for shares. This relief has been the bedrock for moving highly geared portfolios out of the crippling grip of Section 24.

Under Current Rules (Pre-April 2026):

• The relief applies automatically when the statutory conditions of Section 162 are met.

• There is no separate claim process; the deferral is simply recorded on the tax return.

What Will Change From April 2026

By shifting the relief from an automatic rule to a claims-based relief, the Government is creating new compliance hurdles and risk areas:

1. New Statutory Deadlines: Claims-based reliefs have strict deadlines. Missing a deadline could lead to the claim being denied.

2. Increased Scrutiny and Evidence Standards: HMRC scrutiny is expected to rise. A deliberate claim must be supported by robust evidence proving the rental activity qualifies as a “business.”

3. Risk of Immediate CGT: If the claim is improperly made or overlooked by an advisor, the landlord could face an immediate, unexpected CGT bill on the full gain of the transferred properties.

4. Heightened Advisory Risk: Accountants and solicitors will face new procedural duties and higher risk exposure, requiring explicit advice and explicit compliance steps for every incorporation.

Why This Matters: A New Timeline for Landlords

This change affects all incorporations that complete from 6 April 2026 onwards. The relief remains automatic until that date.

Landlords who have been deferring incorporation plans (perhaps waiting for mortgage fixed terms to end) now face a critical timeline. If your mortgage fix ends after April 2026, you will be subject to the new, claims-based regime.

• Section 24 Mitigation: While the relief itself remains available, the new procedural risk adds complexity to the primary strategy for restoring full mortgage interest deductibility.

• Legacy Planning: Long-term succession plans, such as those involving Family Investment Companies, require careful sequencing and will need to factor in the new, non-negotiable claim step and its associated deadlines.

Landlords considering restructuring for tax, finance, or succession reasons must now review their timelines to determine the feasibility of completing the necessary transfers before April 2026 to use the current automatic relief.

ACTION PLAN: What Landlords Must Review Now

The shift to a claims-based system demands a significant step-up in planning and documentation. You must review:

• 🗓️ Timeline: Can your planned incorporation complete before 6 April 2026?

• ✅ Business Status Evidence: Do you have clear, robust documentation that proves your rental activity meets the “business” test required for the relief?

• 🤝 Advisory Support: Are your accountant and solicitor prepared for the explicit procedural duties of a claims-based relief?

• 🏦 Lender Consent: Ensure lender consent and refinancing are perfectly aligned with the tax transfer process, minimizing the procedural risks introduced by this change.

This major alteration, hidden deep within the Budget documents, is a procedural timebomb for the industry. Proactive planning is now vital to ensure a successful and tax-efficient portfolio restructure.