There is money to be made from telling landlords that their previous adviser got it wrong. There can be fees for reviewing the arrangement, fees for replacing it and fees for pursuing a claim. That commercial reality deserves as much scrutiny as the advice being criticised.
If you are the landlord receiving that warning, the anxiety is yours and so are the consequences of whatever happens next. You deserve a clear explanation of the alleged problem, the available options and the full cost of changing course.
Charging for specialist advice is entirely proper. What deserves examination is whether the recommendation justifies the fees, addresses the evidence and protects the client’s interests. That applies to Property118 as much as anybody else.
I feel strongly about this because a property business can represent decades of work, sacrifice and plans for retirement. An alarming opinion can leave its owners feeling that they must do something immediately. Before recommending a change, an adviser should explain what it could destroy as well as what it could achieve.
You should also normally give the original adviser an opportunity to answer the criticism before implementing the proposed remedy. A missing document, misunderstood transaction or overlooked explanation can materially change the assessment.
“Your previous adviser got it wrong” is the beginning of an investigation. It is nowhere near enough to justify surrendering a valuable entitlement or liquidating a business.
Where advisers challenge the principles we have explained, I expect them to address the relevant HMRC guidance, the published judgment and the actual transaction documents. I also expect them to examine how those same sources affect any alternative they recommend. Clients deserve a comparison that applies the same scrutiny to every option.
Why the treatment of borrowing matters
Start with a practical commercial problem: a landlord wants to incorporate a property business but has existing mortgages. Those mortgages may carry favourable rates, substantial early repayment charges or terms that cannot readily be replaced. The owner may also want the flexibility to refinance when it makes commercial sense.
The way those liabilities are dealt with can affect the tax position. Section 162 Incorporation Relief can defer Capital Gains Tax where a qualifying business is transferred as a going concern to a company, together with its assets other than cash if desired, wholly or partly in exchange for shares. Consideration other than shares can restrict the relief. Read the government’s explanation of Incorporation Relief.
HMRC’s manual CG65745 explains that business liabilities taken over by the company would ordinarily count as additional consideration. However, Extra-Statutory Concession D32 allows qualifying business liabilities to be disregarded for that purpose. The same manual describes an indemnity from the company to the transferor as the normal practical mechanism. The concession has conditions and does not extend to the transferor’s personal liabilities. Read CG65745 and ESC D32.
That is why I attach such importance to the indemnity and the actual transaction documents. Replacing existing borrowing with a fresh company loan should never be assumed to have identical consequences merely because the properties and the economic amount of debt look much the same afterwards.
Our labels SIS — Substantial Incorporation Structure — and CAR — Capital Account Restructure describe approaches intended to address practical incorporation problems, including existing finance and continued access to owners’ capital. Readers can examine our explanations of the incorporation process and CAR and its commercial purpose.
What the Tribunal actually said
The relevant judicial record is Property 118 Limited and Cotswold Barristers Limited v HMRC [2026] UKFTT 1111 (TC). These passages deserve particular attention:
- Paragraph 57: reproduces Simon’s Taxes B9:114’s warning that fresh company borrowing used to discharge the transferor’s debts could jeopardise ESC D32.
- Paragraph 65: reproduces B9:112’s guidance on withdrawing substantial capital before incorporation to avoid its becoming tied up in shares.
- Paragraph 151(1): recognises that SIS can preserve full Incorporation Relief where refinancing may not.
- Paragraph 166: addresses commercial reasons for retaining existing mortgages and choosing when to refinance.
- Paragraphs 179–180: reject the premium fee argument concerning CAR and recognise commercial financing fees.
- Paragraphs 183–185: examine CAR’s purpose and reject the contention that its financing steps were contrived or abnormal.
- Paragraph 187: allows the appeals and cancels HMRC’s scheme reference number decisions.
These findings concern DOTAS, the disclosure regime. They do not determine every client’s eligibility for relief or whether every transaction was implemented correctly. Read the full judgment and the paragraphs above.
Simon’s Taxes is a subscription publication, but the relevant extracts can be read in the judgment. Readers can therefore examine that guidance without relying on my description of it or obtaining a subscription.
An adviser recommending immediate refinancing should explain how the proposed transaction deals with the published warning. An adviser dismissing capital restructuring should explain how the client will retain access to their capital. Professional qualifications do not remove the need to answer either question.
Why access to capital matters
A business owner approaching retirement may want less work, reliable income and access to money for travel, family support or future care. Those objectives should guide the discussion. The legal and financial structure needs to support the life the client wants.
A genuine director’s loan account in credit records a debt owed by the company to the director. Repayment of the principal is ordinarily a return of money owed, without a further personal income tax charge on that repayment. Interest and dividends have different treatment. The existence of the debt, its outstanding balance and previous repayments must be established from the records. Read the government’s guidance on directors’ loans.
That distinction can materially affect retirement planning. The company may generate cash through rental profits, selected property sales or appropriate borrowing and use available funds to repay its debt to the owner. A property sale can still produce a Corporation Tax liability inside the company, so the money available must be calculated after company taxes, costs and other obligations. Read the guidance on Corporation Tax when a company sells assets.
A loan balance is finite and repayments reduce it. Nevertheless, an established entitlement to recover capital can provide considerable flexibility. Before recommending an alteration that could remove that entitlement, I would expect an adviser to explain precisely how the owner would obtain money instead.
Two examples that deserve closer examination
These concerns arise from actual client records. The examples below show why I believe later recommendations deserve a complete examination of their consequences. The available material raises important questions; the full advice and resulting position still need to be established.
Liquidating a property investment company
In one case, the owner of a property investment company has appointed liquidators, explaining that the aim was to simplify life. Our historic records describe an unencumbered property portfolio. The current borrowing position and the advice leading to the liquidation still need to be established.
Did the owner positively want to end the business? Could selling selected properties, reducing management responsibilities or arranging appropriate finance have achieved the desired freedom? If the company owed the owner money, was repayment of that debt considered?
The absence of mortgages would not, by itself, make liquidation inappropriate. It would make me particularly interested in the alternatives considered. I would want to see the comparison of costs, tax, continuing income and access to capital that supported the decision.
Disregarding financing transactions around incorporation
In another file, correspondence records advice to disregard financing arrangements surrounding an incorporation. Completion material records temporary external finance being advanced, a loan to the company and repayment of the external lender. Those steps had an intended commercial purpose: preserving the owners’ ability to recover capital from their company as money owed to them.
The original provider explained that the finance had completed and warned about the consequences of disregarding it. That explanation needs to be reconciled with the later advice, the completion records and the accounting treatment ultimately adopted.
If the proposed response is to recast share premium by disregarding those transactions, the adviser should explain the legal and accounting basis. Share premium forms part of shareholders’ capital; it is not interchangeable with a genuine debt owed to the owners. Before accepting a revision, clients should understand what happens to their creditor position and how they will obtain money personally when they need it.
The wider distinction between money owed to owners and value held in shares is explored in our case study about later advice and access to owners’ capital. Each client’s position must be established from their own documents and actual transactions.
My concern is straightforward. A response presented as reducing uncertainty could leave a client with less financial flexibility. Before recommending it, the adviser should explain whether that trade-off is necessary, what it would cost and how it affects the client’s original objectives.
Six options to examine before changing course
A client needs more than a diagnosis. They need a properly costed examination of the available remedies, with a clear explanation of what each would mean for their business and personal finances. I would expect the following possibilities to be considered wherever relevant.
1. Keep the business and establish whether the existing arrangement can be supported
Identify the alleged defect precisely. Is the dispute about eligibility for Incorporation Relief, what the documents achieve, an accounting entry or something HMRC has actually assessed? Those are different questions and may require different responses.
Obtain the complete documents, completion records and original explanation. A recommendation to retain and defend the existing position should be a possible outcome of the review. Any HMRC response or appeal deadlines still need to be protected while that work takes place.
2. Sell selected properties
If the objective is a capital sum or a lighter workload, why sell everything? Compare properties by their return on current equity, maintenance requirements, management burden and prospects. Selling a few poor performers may release sufficient money while retaining the stronger part of the business.
Calculate the proceeds after tax, selling costs and debt repayment. Then establish how much can properly be paid to the owners against any genuine outstanding loan balance, and what continuing income the retained portfolio could provide.
3. Refinance suitable properties
An unencumbered or lightly mortgaged portfolio deserves a proper assessment of borrowing capacity and affordability. The comparison should show the cash released, fees, interest costs, remaining rental income and effect on retirement plans. The owner can then decide whether the additional borrowing serves their objectives.
A later refinancing of an established company’s assets requires its own analysis. It must not be casually equated with fresh company borrowing used to discharge the transferor’s liabilities as part of incorporation. Timing, ownership, existing obligations, lender requirements and the use of funds all need checking.
The tax treatment of interest must also be examined under the rules applying to the borrower. For unincorporated businesses, HMRC’s BIM45700 expressly cautions that replacing capital with borrowing does not, by itself, satisfy the wholly and exclusively test. A positive capital account should not be treated as an automatic answer to every interest deduction question. Read BIM45700.
4. Establish the proper legal interpretation of the documents
Under English law, a disputed clause must be considered through the recognised rules of contractual interpretation. In Wood v Capita [2017] UKSC 24, paragraphs 10–13, the Supreme Court explains the objective approach, considering the agreement as a whole and its relevant context. Commercial consequences matter, but the court cannot simply improve a bargain with hindsight. Read Wood v Capita, paragraphs 10–13.
For a landlord, the practical question is whether the criticism survives a proper reading of the complete agreement. If competing interpretations have substantial consequences, ask a suitable lawyer whether seeking a judicial determination is justified and proportionate. A confident opinion about an isolated clause should be tested against the whole contract.
5. Investigate rectification where the document fails to record the intended agreement
Rectification is a distinct legal remedy. In FSHC Group Holdings v GLAS Trust Corporation [2019] EWCA Civ 1361, paragraph 176, the Court of Appeal explains that rectification for common mistake requires a document that fails to reflect a prior concluded contract, or a shared actual intention at execution that was communicated between the parties but mistakenly recorded.
Paragraph 180 explains why merely failing to achieve a tax objective is insufficient. The evidence must establish the specific intended agreement. Instructions, correspondence, drafts and contemporaneous records may therefore be crucial. Read FSHC, paragraphs 176 and 180.
HMRC recognises applications to the High Court to rectify defective trust deeds in TSEM1902. It also says that, without a court order, it would normally follow the tax consequences of the document’s actual wording. That guidance concerns trust deeds, but it illustrates why signing a private correction now cannot simply be assumed to settle the historic tax position. Read TSEM1902.
Ask whether the evidence supports a court application, what it would cost and which consequences a successful order would address. Where the documents failed to record an agreed transaction, that investigation may be important before deciding to dismantle the resulting business structure.
6. Compare liquidation against those alternatives
A Members’ Voluntary Liquidation may serve an owner who wants to close a solvent company. The comparison should include professional fees, company taxes on disposals, any applicable property transfer taxes, the personal tax treatment of distributions and provision for outstanding liabilities.
Government guidance requires a declaration that the company can pay its debts, with interest, within the specified period of no more than 12 months. A disputed tax liability therefore needs proper attention. Read the government’s guidance on Members’ Voluntary Liquidation.
Ask for the net money reaching the owners and the business income they would give up. Put those figures alongside the corresponding outcomes from retaining the business, selling selectively or refinancing. The client should be able to see why liquidation best serves their objectives before committing to it.
Some of these options can work together. Establishing a contract’s meaning, or correcting a proven documentary mistake, may preserve the foundation for a subsequent sale or refinancing. Changing the structure before resolving the legal position may complicate the choices, so the sequence also needs proper consideration.
A diagnosis without a properly costed examination of the available remedies is an inadequate basis for a life-changing decision. The client needs to understand what each option preserves, what it gives up and what money will remain.
Give the original adviser an opportunity to respond
Ask the reviewing adviser to put the criticism in writing, identify the documents examined and explain the proposed remedy. Then normally invite the original adviser to address the specific criticism and the consequences of that remedy. Take your lawyer’s advice before sharing privileged material and protect urgent deadlines.
If the original adviser identifies an indemnity missing from the review, a misunderstood payment or an overlooked contractual interpretation, the reviewing adviser should answer that point. If the criticism survives that exchange, the client has a clearer basis for deciding what to do.
The original adviser’s response should itself be tested against the evidence. Their involvement should help establish the facts and explain the transaction; it does not give them control over the client’s decision or prevent an independent assessment.
Clients should lead their own decisions, supported by professional explanations they can understand. They should not be expected to resolve an argument between advisers without being shown where those advisers disagree, why it matters and what the practical choices are.
Who benefits from the recommendation?
That brings me back to the question in the headline. If a recommendation produces fees for a review, a replacement structure, a liquidation or a claim, the client should know who receives those fees and whether referral payments are involved.
The existence of a financial interest does not establish that the advice is wrong. It does make transparency important. I would also ask whether retaining the existing arrangement was a realistic possible recommendation, and what evidence would cause the reviewer to change their assessment.
Where an adviser has previously expressed a public view about an arrangement, ask how the review has dealt with evidence that challenges that view. The answer should be capable of examination against the documents, the relevant authorities and the client’s circumstances.
There is a further question that deserves a direct answer: if an alternative approach carries a risk identified in established tax guidance, has the adviser examined the implications for their own recommendations? A fair comparison requires the same standard of examination on both sides.
It takes work to explain an indemnity, reconcile a loan account, trace completion funds, consider a contractual remedy and calculate the client’s net position under competing options. That is the work clients need. A forceful criticism cannot substitute for it.
I am passionate about protecting Property118’s clients and our business. We earn fees too, and I expect our explanations to withstand the scrutiny I am asking others to accept. Where a dispute concerns our own work, clients remain entitled to obtain an independent specialist’s assessment.
What I will challenge is the suggestion that professional status or public confidence can substitute for examining the documents and answering the evidence. A landlord should never feel obliged to dismantle years of planning simply because a criticism was delivered forcefully. Before changing course, they deserve to understand what is wrong, what can be done about it, what they might lose, and who will benefit.
