HMRC thought it had fixed its 20-hour landlord guidance, but has another property tax case exposed the next flaw?

Seven days before HMRC amended its controversial 20-hour guidance for landlord Incorporation Relief, the First-tier Tribunal handed down another property tax judgment which deserves rather more attention than it has received.

It is not a Section 162 case and I am not going to pretend that it is, but one part of Alan Pontin & Ors v HMRC [2026] UKFTT 1166 (TC) goes directly to the question HMRC still left unanswered when it changed CG65715 on 20 August: what happens when substantial business activity is undertaken by employees, contractors and professional advisers rather than personally by the owner?

That point matters because HMRC has now accepted, following the recent amendment to CG65715, that somebody spending fewer than 20 hours a week on their property activities may still be carrying on a business for Section 162 purposes. I covered that welcome change in HMRC changes 20-hour landlord incorporation guidance weeks after Property118 open letter, but pointed out that HMRC had retained the words “personally undertaking” when describing the activities it expects its officers to consider.

Pontin does not answer the Section 162 question for landlords, but it does make that remaining wording look increasingly uncomfortable.

What happened in Pontin?

The case concerned Alan Pontin, Thomas Pontin, Carol Pontin and Benjamin Pontin, who sold shares in Highland Holdings Limited in 2016 and claimed the relief then known as Entrepreneurs’ Relief. The underlying company, Associated Properties UK Limited, owned a substantial property at Henley-on-Thames which had historically been operated as an investment property but which the directors decided in 2011 should instead be developed for residential use. The property was subsequently reclassified in the accounts from fixed-asset investment property to trading stock, and a considerable amount of work was undertaken over several years to promote the site through the planning system and secure its inclusion within the local Neighbourhood Plan.

The relevant statutory test was the definition of a trading company in Section 165A TCGA 1992. By the time of the hearing, HMRC had actually conceded that the company was carrying on activities with a view to starting a trade and that the trade was started as soon as reasonably practicable. The remaining argument was whether the company nevertheless had non-trading activities which were substantial enough to prevent it satisfying the statutory definition of a trading company.

That was not an entirely fanciful argument. The company continued to receive rental income from the property throughout the relevant period, and indeed rental income was effectively the only income arriving during that particular twelve months. If somebody had looked solely at the accounts for that period, without understanding what was happening commercially behind them, it would have been very easy to describe the company as a property investment company collecting rents while contemplating a future development.

The Tribunal did not look at it that way.

The Tribunal looked at the business as a whole

The judgment relied heavily upon the Upper Tribunal’s decision in Assem Allam v HMRC [2021] UKUT 291 (TCC), another case involving the distinction between property investment and property development. The important principle taken from Allam was that this is a holistic and multifactorial exercise. You look at what the company actually does in commercial terms, taking account of physical activity, financial activity, income, expenditure, assets and the wider circumstances before making an overall judgment.

There is one sentence from Allam which is particularly striking in the context of the debate we have been having with HMRC. The Upper Tribunal said that measuring an activity must involve “more than a simple measure of the time and work involved”. Pontin then applied that reasoning and said that its own task was to look at everything the company did and make an overall value judgment.

That ought to sound familiar to anybody who has followed Property118’s challenge to the way the 20-hour figure from Elisabeth Moyne Ramsay v HMRC [2013] UKUT 226 (TCC) came to be used in landlord incorporation discussions. Ramsay did not create a statutory stopwatch. Judge Berner said that it was the degree of activity as a whole which mattered, yet for years the factual reference to approximately 20 hours became far more prominent in professional discussions than those words ever justified.

That was why I published Has the Upper Tribunal exposed a flaw in HMRC’s guidance on landlord incorporation relief? in June, followed by my open letter asking HMRC to clarify the 20-hour guidance in July. HMRC eventually did so on 20 August and now expressly accepts that fewer than 20 hours may still amount to a business.

But Pontin goes further than hours

The part of Pontin that really caught my attention appears in the Tribunal’s discussion of who actually carried out the development work. A large amount of the activity was not undertaken by employees sitting on Associated Properties UK’s payroll. Some services were provided by directors whose time was charged through associated companies, while specialist planning work was undertaken by an external consultant. HMRC’s argument required the Tribunal to consider how that bought-in activity should be treated.

The Tribunal had little difficulty with the point. It said that when examining the company’s physical activities it could take account of work and effort supplied by people who were not employees or directors. It then referred approvingly to another property decision, Mark Stolkin & Ors v HMRC [2024] UKFTT 160 (TC), where the First-tier Tribunal had rejected HMRC’s argument that work undertaken by external planning and development consultants should simply be disregarded.

The proposition quoted in Pontin could hardly be clearer: “contractors’ services can be used without that preventing a trade being carried on.” In commercial terms, that is hardly surprising. Businesses buy expertise every day. A developer who employs a planning consultant has not somehow stopped undertaking development activity because the planning application was prepared by Savills rather than by somebody sitting at the desk next to the managing director.

Pontin went on to count those bought-in services when assessing the company’s activities, while taking care not to count them twice by then giving excessive additional weight to the fees paid for the same work. That is a sensible commercial approach because the relevant question is what the company was doing, not whether every human being involved happened to appear on its PAYE records.

Now read HMRC’s remaining wording again

HMRC’s revised CG65715 is much better than it was a week ago. It now makes clear that a landlord below 20 hours may still satisfy the Section 162 business test, and HMRC officers are instructed to establish the facts and consider the wider factors rather than treating the hours figure as an automatic failure point.

However, HMRC has retained the wording which tells officers to accept relief where an individual spends 20 hours or more each week “personally undertaking” activities indicative of a business. That leaves a fairly obvious question hanging in the air. If somebody owns and directs a substantial property operation but employs a managing agent, bookkeeper, maintenance team, letting staff, surveyors, solicitors and other professional contractors to undertake parts of the work on behalf of the business, why should those activities disappear from the analysis simply because the owner had the commercial sense not to do everything personally?

I raised exactly that problem in the open letter and HMRC’s August amendment has not answered it. Pontin is obviously dealing with different statutory wording and a company preparing to carry on a property development trade, so it would be wrong to say that the decision determines how Section 162 must operate for an individual landlord. Nevertheless, a tax tribunal has now expressly recognised in a property context that bought-in services can form part of the activities being carried on by the business and should not simply be erased from consideration because somebody else performed them.

That seems rather more consistent with commercial reality than asking a successful business owner how many boiler repairs, tenant telephone calls and bookkeeping entries they personally dealt with last Tuesday.

The rental income finding is just as interesting

There is another aspect of Pontin which deserves attention because the company was still collecting substantial rents while preparing the property for development. HMRC argued that this was passive property income and therefore evidence of significant non-trading investment activity. The Tribunal accepted that one historic long-term lease did represent investment income, but it refused to treat every pound of rental income in the same way.

The newer tenancies had deliberately been kept short and easily terminable so that they would not interfere with the proposed development. They generated enough income to help meet ongoing costs, reduced the business rates that would otherwise have fallen on vacant premises and, importantly, allowed the company to manage occupiers in a way that avoided creating hostility towards the development before a crucial local referendum. The Tribunal concluded that these short-term lettings were integral to the company’s preparations for its development trade and should not count against it when deciding whether its activities were substantially non-trading.

The judgment therefore contains another commercially sensible observation: the fact that money is labelled rental income for tax purposes does not automatically answer the quite different question of what role the underlying activity plays within the business. The Tribunal expressly said that rental income does not always have to be treated as investment income with an automatic negative consequence for the trading-company analysis; much depends upon why the company is receiving it.

Again, landlords should resist the temptation to stretch that finding further than it goes. Pontin does not say that ordinary buy-to-let rental income is trading income, and it certainly does not convert a conventional property investment business into a property development trade. What it demonstrates is that tax analysis sometimes requires us to understand the commercial purpose of an activity rather than stopping when we find a convenient label for the receipt it produces.

Ramsay, GCH and Pontin are different cases, but there is a common theme

It is important to keep the statutory contexts straight because tax arguments quickly become unreliable when cases dealing with different provisions are treated as though they were interchangeable. Ramsay is directly concerned with the meaning of business for Section 162 Incorporation Relief. HMRC v GCH Corporation Ltd [2026] UKUT 219 (TCC) concerned whether an LLP was carrying on a trade or business with a view to profit under Section 59A, while Pontin concerns the separate statutory definition of a trading company under Section 165A. Pontin is also only a First-tier Tribunal decision, whereas Ramsay and GCH are Upper Tribunal authorities.

None of that means we should ignore the way the tribunals are reasoning. In Ramsay, the Upper Tribunal told us to consider the degree of activity as a whole. In GCH Corporation, the Upper Tribunal endorsed a careful and holistic assessment of whether investment activity amounted to a business, which I examined in HMRC loses Upper Tribunal appeal over the meaning of ‘business’. In Allam, the Upper Tribunal said the exercise could not be reduced to a simple measure of time and work. Pontin has now applied that holistic approach in another property case and expressly taken account of activity carried out through third-party contractors.

That is not a chain of authorities saying every landlord qualifies for Section 162. It is something much more useful than that, because it reminds advisers to stop hunting for a single magic number and examine what the business actually does.

The practical lesson for landlords is evidence, not manufactured timesheets

If a landlord’s Section 162 position is genuinely borderline, the answer is not to sit down retrospectively and manufacture a diary showing 20 hours of activity every week. HMRC’s own revised guidance has now effectively acknowledged that this was never the right way to think about the issue. What matters is credible evidence showing the nature, continuity, scale, organisation and commercial substance of the activities undertaken by and on behalf of the business.

That might include records of acquisitions and disposals, finance and refinancing work, refurbishment and development projects, regulatory and compliance responsibilities, decisions concerning rents and tenants, oversight of managing agents, instructions to contractors, correspondence with accountants and solicitors, capital expenditure decisions, business planning and the management of people who carry out work on the owner’s behalf. The significance of any one item will depend upon the circumstances, but collectively that evidence tells a far more useful story than the number written at the bottom of a weekly timesheet.

This becomes even more important for transfers taking place from 6 April 2026 because Incorporation Relief must now be positively claimed. As I explained in HMRC sets out new claim rules for landlord Incorporation Relief, HMRC is now requiring taxpayers to provide more information about the business and the calculation behind the relief. If HMRC subsequently enquires into the claim, the quality of the contemporaneous evidence supporting the existence of the business could become crucial.

Perhaps HMRC now needs to finish the job

I welcomed HMRC’s decision to amend CG65715 because the clarification on fewer than 20 hours was needed and overdue. The next question is whether HMRC should now revisit the remaining reference to activities being personally undertaken, particularly when the tax tribunals themselves are perfectly capable of recognising that commercial activity can be carried out through directors, employees, agents and bought-in professional expertise.

There may be sensible distinctions to draw between an owner who genuinely directs and operates a business through other people and somebody who does little more than own an asset and collect the resulting income. That is precisely why this should remain a question of fact and degree rather than being replaced by another simplistic rule. Delegating work does not necessarily prove the existence of a business, but neither should sensible delegation make genuine business activity disappear.

HMRC has already corrected one potential misunderstanding in its guidance. In light of Pontin, perhaps it is now time to clarify the other one.

If you have previously been told that your property business cannot qualify for Incorporation Relief simply because you do not personally spend 20 hours a week carrying out routine management work, the revised HMRC guidance means the position deserves a more careful examination. That does not mean you automatically qualify, but it does mean the right starting point is your actual business, how it operates and what is done on its behalf, rather than an arbitrary number on a stopwatch.

Why experience matters when incorporating a property business

I’m going to say this plainly: no other organisation has more practical experience of landlord incorporation than Property118.

That is a bold claim, but it is one we have earned the right to make. We have conducted thousands of consultations with landlords, helped hundreds to incorporate their property businesses and supported clients through HMRC compliance checks and Discovery Assessments.

We have also taken our own landlord incorporation model all the way through a 10-day First-tier Tribunal hearing against HMRC.

I am not aware of any other organisation that can match that experience.

Setting up a company is the easy bit

Some landlords think incorporation means setting up a limited company and transferring their properties into it.

I wish it were that simple.

A company can be formed online in a few minutes. The difficult part is working out whether transferring your existing property business into that company makes sense in the first place.

What happens to your mortgages? How will you take money from the company? Should your children become shareholders now or later? What happens if you die? Will you still be able to sell individual properties? Should the mortgages be refinanced immediately, or would that destroy good interest rates and trigger substantial fees?

Then there are the Capital Gains Tax and Stamp Duty Land Tax questions.

Getting just one of those things wrong can be extremely expensive.

Most landlords are trying to solve business problems

The landlords who come to Property118 are rarely looking for a tax scheme. Most have spent decades building their portfolios and are trying to work out what comes next.

Some want to reduce their personal exposure to business risks. Some want to bring their children into the business without immediately handing over everything they have worked for. Others are approaching retirement and want the property business to continue after they are no longer able to run it.

Many do not want to refinance 10, 20 or 30 properties on the same day simply because an adviser tells them that is how incorporation is normally done. They may have valuable mortgage rates, early repayment charges or lenders that will not offer an equivalent company mortgage.

Those are real commercial problems. Tax is important, but it is part of the picture rather than the whole picture.

That distinction matters because the right structure should follow the landlord’s objectives. The structure should not be chosen first and then dressed up with reasons afterwards.

Experience earned the hard way

Property118’s incorporation work has probably been examined more closely than any other landlord incorporation model in the country.

HMRC allocated Scheme Reference Numbers to two arrangements connected with our work. Critics called us scheme promoters, cowboys, grifters, clowns and considerably worse. Some expected us to disappear and leave our clients to deal with the consequences.

We did not.

We stopped taking on new incorporation consultancy while the dispute was being resolved. We supported clients through HMRC enquiries, instructed leading counsel and appealed against HMRC’s decisions.

The hearing lasted 10 days and involved thousands of pages of evidence. On 31 July 2026, the Tribunal allowed the appeals and cancelled HMRC’s Scheme Reference Numbers.

That does not mean the Tribunal decided that every landlord should incorporate or that every landlord automatically qualifies for every available tax relief. It did not. The case was about whether the arrangements had to be disclosed under the DOTAS rules.

What it does mean is that HMRC’s attempt to treat the arrangements as notifiable tax avoidance schemes failed after a full hearing.

There is a considerable difference between commenting about landlord incorporation from the sidelines and standing behind clients when HMRC comes knocking.

We have done the latter.

Why one professional is rarely enough

An accountant may understand the tax. A solicitor may understand the legal documents. A mortgage broker may understand the finance.

All three may be perfectly competent within their own areas, but that does not necessarily mean anybody is looking at the transaction as a whole.

A solicitor might insist that all legal titles must be transferred immediately. That could force the landlord to repay every existing mortgage. A broker might then arrange new company mortgages because that is what the solicitor has requested. The accountant might assume the refinancing has no effect on the available tax reliefs.

Each professional completes their own part of the job, but the landlord can still end up with a poor overall result.

Property118’s role is to bring the tax, legal, accounting, mortgage and commercial considerations together around what the client is actually trying to achieve.

That is where our experience is different.

Sometimes the right answer is not to incorporate

Having more experience does not mean recommending incorporation to everybody.

For some landlords, incorporation can improve business continuity, refinancing flexibility, succession planning and the ability to retain profits for future investment.

For others, the tax costs, mortgage position, intention to sell properties or need to withdraw most of the rental income can make incorporation unsuitable.

We regularly tell landlords not to incorporate when the figures or their plans do not justify it. A limited company is a tool, not a religion.

The purpose of a Property118 consultation is not to sell a predetermined structure. It is to understand what the landlord wants to achieve and then work out whether incorporation helps.

Begin with the right question

The wrong question is:

“How do I transfer my properties into a limited company?”

The right question is:

“What do I want my property business to achieve for me and my family, and is incorporation the best way to achieve it?”

Property118 has more experience of helping landlords answer that question than any other organisation.

We have not simply read about landlord incorporation or commented upon it. We have planned incorporations, coordinated their implementation, supported clients through HMRC investigations and defended our work before the Tribunal.

Isn’t that the sort of experience you want behind you?

BOOK YOUR CONSULTATION TODAY

BOOK YOUR CONSULTATION TODAY

Property118 has prepared two detailed guides explaining the new Section 162 claim process and the information landlords and their professional advisers should retain.

1) Understanding Section 162Incorporation Relief Applications 

2) Section 162 Incorporation Relief Claims

Landlords considering incorporation can also book a Property118 consultation here to discuss their objectives and the professional workstreams that may need to be coordinated.