As the founder of Property118, I have watched our clients spend more than two years living with HMRC allegations, discovery assessments and repeated suggestions that the incorporation arrangements they entered into after taking professional advice were somehow artificial or improper. Many of those clients incorporated because they faced genuine commercial problems involving refinancing, succession, business continuity and access to capital they had already invested in their property businesses. The decisions were theirs, based on their own objectives, with professional advice used to establish whether those objectives could be implemented lawfully.
Now that the First-tier Tribunal has ruled that Property118’s Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) were not notifiable under the Disclosure of Tax Avoidance Schemes regime, usually shortened to DOTAS, some competitors have begun publishing what appear at first glance to be independent reviews of the judgment.
The pattern is difficult to miss. These articles concentrate heavily on what the Tribunal was not asked to decide, minimise or bury its strongest findings, tell Property118 clients why they should remain worried and then invite those same readers to book a discovery call or request a proposal.
I have no objection to genuine independent professional advice. Property118 has always encouraged clients to involve their own accountants, solicitors and other advisers when making important business decisions. Nor do I object to fair competition.
What I do object to is a sales page dressed up as independent analysis, particularly where its apparent purpose is to unsettle people who have already endured more than enough anxiety and then divert them into a competitor’s sales funnel. In my view, that looks less like objective commentary and more like professional ambulance chasing.
The clearest example is paragraph 185 of the Tribunal judgment. HMRC has itself acknowledged that external criticism influenced its approach to the Property118 arrangements. It nevertheless alleged that the Capital Account Restructure involved contrived or abnormal steps. After examining the short-term borrowing, the independent lender, the movement of the funds, the directors’ loan arrangements and the commercial purpose of the transaction, the Tribunal concluded that there was “nothing unusual or contrived” about the relevant steps.
That is not a minor footnote. It is one of the most important findings in the entire judgment and should appear near the beginning of any genuinely balanced review.
I would encourage landlords, accountants, solicitors and tax advisers to read the judgment for themselves, particularly paragraphs 166, 172–173, 179–180 and 183–185.
Anyone offering an independent review of a Property118 client’s affairs should surely begin by explaining all of the Tribunal’s findings, rather than selecting only those most likely to leave the client anxious enough to buy another opinion.
Before examining those findings, it may help readers who are less familiar with the case to understand what the two Property118 structures were designed to achieve.
What were SIS and CAR?
Neither SIS nor CAR is a term found in tax legislation. They were simply shorthand names used to distinguish two elements of the Property118 incorporation model.
What is SIS?
SIS stands for Substantial Incorporation Structure.
The commercial problem it addressed was straightforward. Many landlords wanted to incorporate established property businesses but could not sensibly transfer the legal titles and mortgages on every property to the company immediately.
Some had valuable mortgage rates which could not be replicated. Others faced substantial early repayment charges, less favourable company lending terms or properties which lenders would not refinance at all. Cladding was one of the obstacles considered by the Tribunal. In other cases, the cost of replacing dozens of existing mortgages would have run into six figures before the higher continuing interest charges were taken into account.
SIS allowed the business and the beneficial ownership of the properties to pass to the company while the registered legal titles and existing mortgage arrangements remained temporarily in the names of the individual owners where that was commercially necessary.
In simplified form, the steps looked like this:
Existing property business operated personally
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A company is formed
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The business and beneficial ownership of the properties are transferred to the company
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Where immediate refinancing is commercially impractical, legal title remains temporarily with the owners as trustees
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Existing mortgages remain in the owners’ names and the company indemnifies them in respect of the relevant business liabilities
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The company operates the property business and receives its economic benefits
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Legal title and refinancing can be dealt with later when commercially appropriate
The separation of legal title and beneficial ownership is not something Property118 invented. It is a longstanding feature of English property and trust law.
The commercial objective was to allow a genuine property business to be incorporated without requiring the owners to discard valuable funding arrangements simply to change the names appearing on the Land Registry titles and mortgage documents.
Where the owners continued to hold the legal titles, they did so for the company under the trust arrangements. The company became entitled to the economic benefits of the business and assumed responsibility for its operation, while the existing borrowing could remain in place until refinancing became commercially appropriate.
That is why paragraph 166 of the Tribunal judgment matters. The Tribunal heard evidence about precisely these refinancing obstacles and accepted that landlords had genuine non-tax reasons for preserving their existing finance.
What is CAR?
CAR stands for Capital Account Restructure.
CAR addressed a different commercial problem.
A landlord who has operated a property business for many years may have accumulated substantial personal capital within it. That capital may represent deposits originally introduced to purchase properties, further money invested over time, retained profits or funds deliberately left in the business rather than withdrawn for personal use.
When the business is incorporated, an obvious question arises: what happens to that accumulated capital?
Without appropriate planning, a substantial amount of value may effectively become locked into the shares of the new company. Accessing it later can then require dividends, salary, a sale of shares or another form of extraction, even though the money originated from capital which the owner had already invested in the business.
CAR was designed to preserve practical access to that accumulated business capital.
Again, simplifying considerably, the steps looked broadly like this:
The owners have a positive capital account representing capital accumulated in the existing property business
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Independent short-term finance is introduced into the business
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The owners withdraw some or all of the capital which had previously been left invested
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The property business is incorporated and the company indemnifies the owners in respect of the relevant business liabilities
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The owners may retain the extracted cash personally or lend some or all of it to the company
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Any amount lent to the company is credited to the owners’ directors’ loan accounts
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The temporary finance is repaid using replacement company borrowing and/or funds lent to the company by the owners
This is deliberately a simplified visual. It does not attempt to explain every legal document, accounting entry or disputed tax consequence, nor should it be treated as advice about any individual transaction.
The underlying commercial objective is what matters for present purposes. The owners wanted to preserve access to capital they had already built up within their businesses rather than allowing all of it to become permanently locked into company shares.
HMRC argued that the temporary finance and movement of money involved contrived or abnormal steps.
The Tribunal examined that allegation and rejected it.
With that background understood, here are the seven findings which critics seem remarkably reluctant to discuss.
1. The CAR steps were not contrived or abnormal
This is the finding I would place first because it goes directly to one of the most damaging insinuations made about CAR.
HMRC relied upon Description 9 of the DOTAS regulations, which concerned arrangements containing contrived or abnormal steps. It argued that the very short-term borrowing, the controlled movement of funds and the creation of directors’ loan balances formed part of an artificial sequence designed to obtain a tax result.
The Tribunal considered what “contrived or abnormal” meant in this context. It examined the temporary borrowing from an independent lender, the facility agreement, the flow of money, the short duration of the loan and the commercial objective of preserving access to capital previously invested in the business.
Its conclusion at paragraph 185 of the judgment was clear. There was “nothing unusual or contrived” about the relevant steps.
The Tribunal also found that the arrangements served an “underlying commercial purpose”. That purpose was to allow the owners to preserve ready access to capital which they had already invested in their businesses, while obtaining the temporary finance relatively cheaply.
The short duration of the borrowing did not make it artificial. The controlled movement of the funds did not make it commercially irrational. Nor did the existence of a different and more expensive route to broadly the same outcome mean that the route chosen by the clients was abnormal.
That final point is particularly important. Commercial businesses are not ordinarily required to select the most expensive available method of achieving a legitimate objective merely to demonstrate their sincerity. A transaction does not become contrived simply because it has been organised efficiently.
HMRC put the allegation squarely before the Tribunal. The Tribunal examined it and rejected it.
Any article which describes the DOTAS victory as little more than an administrative cancellation while failing to give proper prominence to paragraph 185 is not presenting the judgment fairly.
2. Releasing accumulated business capital on incorporation was recognised as normal practice
Paragraph 184 is almost as important.
The Tribunal considered leading professional commentary dealing with the incorporation of businesses and the treatment of capital accumulated by their owners. It accepted that it is usual for business owners to consider releasing capital before or on incorporation so that their accumulated investment does not simply become locked into the shares of the new company.
HMRC did not challenge the broader proposition that companies are commonly financed through directors’ loans, or that capital held within an unincorporated business may be converted into a director’s loan position as part of an incorporation.
The commercial problem is easy to understand.
A business owner may have introduced substantial personal funds over many years. The business may also have retained profits rather than distributing every available pound. Incorporation should not automatically mean that all of that accumulated value becomes inaccessible unless the owner later sells shares or extracts further taxable income from the company.
Property118 did not invent that concern, nor did our advisers persuade clients that they suddenly needed access to money they had previously invested. The commercial objective came from the clients. The professional advice was intended to establish whether and how that objective could be implemented.
There may still be legal arguments about the precise tax treatment of particular transactions, including the application of section 162 TCGA 1992 and Extra-Statutory Concession D32. Those arguments will be determined by the legislation, the relevant legal principles, the documentation and the facts.
What cannot fairly be maintained after paragraph 184 is that the underlying commercial objective of preserving access to accumulated capital was itself unusual or artificial.
3. Tax was not found to be the main purpose of SIS or CAR
Some commentary has seized upon the Tribunal’s finding that expected tax outcomes were a main purpose of the arrangements, as though this amounted to a finding that SIS and CAR were tax avoidance schemes in all but name.
That interpretation ignores both the statutory test and the Tribunal’s conclusion.
There is an important distinction between a main purpose and the main purpose.
Property118 did not argue that tax was irrelevant. Section 24 materially changed the taxation of personally owned property businesses, and landlords were entitled to take that into account when deciding whether their existing structures remained commercially suitable. Incorporation Relief, the treatment of business capital and the future taxation of the business were also plainly relevant considerations.
Tax is considered in almost every significant business transaction. It is relevant when businesses acquire assets, sell assets, refinance, reorganise ownership, plan succession or transfer operations into a company. The fact that tax has been considered does not erase the commercial reasons for the transaction.
The Tribunal was required to weigh the expected tax outcomes against the wider reasons for incorporating and for selecting SIS or CAR.
For SIS, it concluded that the expected tax consequences could be regarded as a main purpose, but not the main purpose, when balanced against the commercial and non-tax objectives established by the evidence.
It reached the same conclusion in relation to CAR.
That finding matters because the clients’ decisions were driven by a combination of factors. They wanted to address succession and business continuity, protect existing finance, improve the structure through which their businesses operated and preserve access to accumulated capital. Professional advice did not invent those objectives. It sought to validate and implement choices which the clients had already made about the future of their businesses.
After hearing the evidence, the Tribunal did not conclude that obtaining the tax outcomes was the overriding purpose of SIS or CAR.
That deserves rather more prominence than the suggestion that tax was one of several significant considerations.
4. Some landlords would have used the arrangements even without the expected tax outcomes
Paragraph 173 goes further.
The Tribunal considered whether the arrangements would have been unlikely to be entered into without the expected tax advantages. HMRC’s case was effectively that the structures were sufficiently dependent upon those advantages that clients would not otherwise have used them.
The Tribunal rejected that proposition.
It found that an informed observer could reasonably conclude that at least some landlords would have used SIS or CAR for the non-tax benefits even if one or more of the anticipated tax outcomes had not been available.
This finding is highly significant because it addresses the suggestion that the commercial explanations were merely decoration attached to a standardised tax product.
The evidence demonstrated that landlords had genuine reasons to incorporate, genuine reasons to avoid immediate refinancing and genuine reasons to preserve access to accumulated capital. Those needs existed independently of the disputed tax treatment.
Some landlords needed a succession structure which could continue beyond their own involvement. Some wanted family members to participate in the future growth of the business. Some needed to preserve existing mortgages which could not sensibly be replaced. Others wanted to separate management, ownership and long-term family planning more effectively than was possible through direct personal ownership.
The Tribunal also rejected the suggestion that the complexity of the arrangements proved otherwise. Property portfolio incorporations involve valuable assets, companies, trusts, lenders, contracts and existing liabilities. They require careful documentation.
Complexity is not evidence of artificiality merely because a simplified description would be more convenient for a critic.
5. SIS addressed genuine refinancing and commercial constraints
A central feature of SIS was that it allowed landlords to incorporate their property businesses without first being compelled to refinance every mortgage into the name of the new company.
For many clients, that was not a matter of convenience. Immediate refinancing could have been commercially damaging, prohibitively expensive or impossible.
The Tribunal heard evidence from landlords facing cladding problems, mortgages with valuable historic interest rates, substantial early repayment charges and lenders unwilling to provide equivalent company facilities. Some clients faced six-figure refinancing costs before the continuing increase in annual interest charges was taken into account.
At paragraph 166, the Tribunal recognised substantial non-tax reasons for preserving the existing borrowing. These included retaining favourable mortgage terms, avoiding redemption penalties, dealing with properties which could not readily be refinanced and preserving the freedom to refinance later when doing so became commercially appropriate.
These were client-led commercial decisions.
A landlord who has secured long-term funding on favourable terms does not need to apologise for wanting to preserve it. A business owner whose properties cannot be refinanced because of cladding or lender criteria does not cease to have a genuine incorporation objective merely because legal title cannot immediately be transferred to the company.
SIS was developed to address those real-world constraints. It was not designed to force every client into the same predetermined outcome. The structure was considered where it matched what the client was trying to achieve, and the professional advice was intended to determine whether the client’s objectives and circumstances supported its use.
The Tribunal heard the evidence and accepted that the commercial constraints existed.
Any review which presents SIS primarily as a tax device while failing to explain those findings is giving readers only part of the picture.
6. The CAR financing and brokerage charges were commercial fees
HMRC also argued that CAR fell within the DOTAS premium-fee description.
That allegation required the Tribunal to examine whether the charges paid to the lender and Property118 were ordinary commercial fees or whether clients were effectively paying an enhanced amount for access to a tax advantage.
At paragraph 180, the Tribunal found that the lender’s fee was a commercial charge for providing genuine, very short-term unsecured finance. It also found that Property118’s brokerage fee reflected what a broker would generally charge for arranging finance.
The lender was independent and had not designed CAR. It was being paid for providing a real lending facility carrying genuine commercial obligations and risk.
The Tribunal also rejected the suggestion that the controlled movement of the money somehow deprived the transaction of its commercial character. Given the short duration of the facility and the importance of ensuring that the transaction was completed correctly, the controls over the funds were commercially understandable.
HMRC’s Description 3 case therefore failed.
That is another finding which should be explained clearly to any Property118 client being encouraged to commission a fresh review. The Tribunal did not accept that the financing and brokerage charges were disguised premiums for obtaining a tax result.
7. Property118 won the substantive DOTAS appeal
This final point ought to be obvious, but some commentary has worked remarkably hard to reduce it to an administrative footnote.
The case was heard by the First-tier Tribunal, usually shortened to the FTT. The issue was whether SIS and CAR were notifiable under DOTAS, the statutory regime requiring certain arrangements to be disclosed to HMRC and allocated Scheme Reference Numbers.
Property118 and Cotswold Barristers did not win because HMRC used the wrong form, missed a time limit or made a clerical error. We challenged HMRC’s substantive decisions that SIS and CAR fell within the DOTAS descriptions it had selected.
The burden of proving that rested with the appellants, namely Property118 and Cotswold Barristers.
After a ten-day hearing involving extensive documents, professional evidence, client witnesses and legal submissions, the Tribunal held that Description 5 did not apply to SIS or CAR. It also held that CAR did not fall within Descriptions 3 or 9.
Every DOTAS description relied upon by HMRC failed.
The Scheme Reference Numbers were therefore cancelled.
That does not determine every client’s personal entitlement to Incorporation Relief, and Property118 has never claimed that it does. It does mean that HMRC’s attempt to classify the arrangements under the statutory DOTAS descriptions was defeated on the merits.
A Scheme Reference Number, usually shortened to SRN, is not an inconsequential administrative label. DOTAS status carries reporting obligations, reputational consequences and potential access to further enforcement machinery. HMRC relied upon the SRNs as part of a much wider campaign against Property118, Cotswold Barristers and our clients.
Removing those SRNs after defeating HMRC’s substantive case is not administrative trivia.
What the Tribunal was not asked to decide
The DOTAS Tribunal did not determine whether every Property118 client satisfies every factual requirement of section 162 TCGA 1992. It did not decide every issue concerning beneficial ownership, discovery assessments, capital accounts, SDLT or the implementation of every individual transaction.
That is true, but it is hardly the revelation some competitors now present it as.
Those were not the questions before the DOTAS Tribunal. The fact that a court did not decide an issue it was never asked to decide does not diminish the importance of the issues it did determine.
The Tribunal could not decide whether the DOTAS descriptions applied without examining the reasons clients entered into the arrangements, the refinancing problems SIS addressed, the commercial purpose of preserving access to accumulated capital, the nature of the financing and brokerage fees and HMRC’s allegation that the CAR steps were contrived or abnormal.
Those questions were examined and the findings are now set out in a published judicial decision.
A First-tier Tribunal judgment is not binding precedent in the same way as a decision of the Upper Tribunal or a higher court, and HMRC may seek permission to appeal on an alleged error of law. Those are proper legal qualifications.
They do not turn the result into an administrative technicality.
What happens next?
The substantive issues which fell outside the scope of the DOTAS appeal are already being challenged through the proper legal process.
Two linked lead appeals are currently listed together before the First-tier Tribunal at Taylor House for 27, 28 and 29 October 2026. They are expected to inform the treatment of the wider group of clients whose circumstances and documentation raise similar issues.
Preparation must continue on the basis that the hearing will take place unless and until the position changes. At the same time, the legal team has expressed increasing confidence that some or all of the remaining issues may be resolved favourably on or before the October hearing.
That is not a promise that HMRC will concede. Nor is it a suggestion that the October hearing has been cancelled. It has not.
It does mean that affected clients are not sitting in an indefinite vacuum while HMRC’s remaining allegations acquire the status of established fact. Those allegations are being challenged using the contemporaneous documents, witness evidence and legal arguments available to the appellants.
There is no benefit in publicly rehearsing that evidence before it is presented to HMRC or, if necessary, the Tribunal. The correct forum for determining the remaining legal issues is the appeal process, not a running public commentary written for the benefit of competitors hoping to use the dispute as a client-acquisition opportunity.
When an independent review is really a sales funnel
I repeat that I have no objection to genuine independent advice. A landlord who is uncertain about his or her personal position is entitled to seek a second opinion, and no responsible adviser should object to proper professional scrutiny.
The difficulty arises when a competitor publishes a supposedly independent analysis which speaks directly to Property118 clients, gives disproportionate prominence to everything which might unsettle them, minimises the Tribunal’s strongest findings and then offers a consultation or tailored proposal.
When an article tells worried clients that the useful next step is not to relax and then directs them into a discovery call, readers are entitled to ask whether they are reading impartial analysis or a disguised advertisement.
A genuinely independent review would begin by explaining that the Tribunal found the CAR steps were not unusual, abnormal or contrived. It would explain the finding that the arrangements had an underlying commercial purpose, that releasing accumulated capital on incorporation was recognised as normal practice, that tax was not the main purpose, that some landlords would have proceeded for the non-tax benefits, that SIS addressed genuine refinancing constraints and that the financing and brokerage fees were commercial.
Only after dealing properly with those findings would it move on to the questions the DOTAS Tribunal was not asked to decide.
Anything less risks becoming a sales pitch aimed at unsettling Property118 clients sufficiently to persuade them to pay another firm to review work which that firm hopes to replace.
Our clients deserve better than that.
They deserve balanced advice, accurate reporting and the reassurance that the remaining issues are being addressed properly. They should not be frightened into believing that HMRC’s remaining allegations have been proved when the Tribunal has rejected HMRC’s DOTAS case and made powerful findings about the commercial rationale of the arrangements.
The full decision in Property 118 Limited and Cotswold Barristers Limited v HMRC [2026] UKFTT 1111 (TC) is publicly available.
Please read paragraphs 166, 172–173, 179–180 and 183–185 before accepting anybody else’s description of what the Tribunal decided.
Anyone asking Property118 clients to pay for an “independent review” should surely be prepared to explain every one of those findings first, rather than selecting only the passages most likely to unsettle them and make another sales proposition seem necessary.
