Case study: How later professional advice may have left a landlord couple unable to access their own capital

This case study is based upon the contemporaneous correspondence presently available to Property118. Names, precise financial details and other identifying information have been withheld. We have not seen the complete file or full written advice of the professional subsequently instructed by the clients, and no court or regulator has determined that any adviser was negligent. Nevertheless, the available correspondence raises serious questions which we believe should now be investigated.

An older husband and wife approached Property118 because they wanted to incorporate the property rental business they had built together without losing straightforward access to the capital they had accumulated over many years. Their objectives were predominantly commercial and personal: they wanted continuity for the business, simpler succession planning, greater flexibility as they became older and the reassurance that capital would remain accessible if either of them needed care.

The recommendation developed through Property118 and Cotswold Barristers was intended to achieve those objectives as one integrated plan. It was not simply a matter of putting properties into a company and hoping that everything else would fall into place. The incorporation, the treatment of the partners’ accumulated capital, the temporary finance, the resulting loan accounts and the subsequent accounting and tax treatment all needed to operate together.

Following advice obtained from another professional, however, the couple decided not to complete the part of the arrangement intended to preserve their access to capital, while other elements of the incorporation appear to have continued. The potential consequence is deeply troubling because the couple may now own valuable shares in a property company but lack the straightforward creditor balances that were intended to allow their company to repay substantial amounts to them when funds became available.

Property118 is deeply concerned about the position in which this husband and wife appear to have been left. We do not blame them for obtaining further professional advice or for acting upon it. They did exactly what clients are generally told to do when they are uncertain about an important transaction, and they were entitled to expect the professionals advising them to understand the complete arrangement and explain the consequences of changing any part of it.

This was the incorporation of a husband-and-wife partnership

Although virtually all the correspondence was conducted with the wife, this was not her business alone. The husband and wife had operated the property rental business together as a partnership in practice, and it was their joint business that was being incorporated.

That distinction matters because the capital involved represented the accumulated interests of both partners. The purpose of the recommendation was therefore not simply to create a personal director’s loan for the wife. It was to preserve the couple’s respective positive capital balances in a form that could remain accessible to them after their partnership business had been transferred to the company.

In simple terms, the couple had spent many years putting money into their property business and leaving profits within it. Their positive capital accounts represented the economic value they had accumulated rather than withdrawn and spent. That capital was especially important to them because their health circumstances meant that future care costs were a genuine commercial and personal consideration.

The couple were not merely trying to become shareholders in a valuable company. They also wanted to preserve a practical route by which capital previously accumulated in their partnership could eventually be returned to them.

Owning a valuable company is not the same as being owed money by it

This case can be understood by appreciating the difference between owning shares in a valuable company and being owed money by that company.

A company is legally separate from its shareholders. Even where a husband and wife own every share, the company’s properties, rental income and bank balance belong to the company. The shareholders cannot simply treat its money as their own and withdraw whatever they require.

Money can only be paid out through a recognised legal and accounting route, such as salary, dividends, repayment of a genuine loan, a purchase of shares, a reduction of capital or an eventual liquidation. Each route has different conditions and potentially different tax consequences.

A director’s loan account in credit creates a materially different position. Government guidance explains that an in-credit account means the company owes money to the director. Subject to the company remaining solvent and having the necessary cash, repayment of that genuine debt is fundamentally different from paying salary or declaring a dividend.

Consider a simplified example in which two partners have accumulated £100 of capital in their property business. If the business is incorporated and that value becomes represented entirely by shares, the couple still own the economic value, but the company does not necessarily owe them £100. To obtain the money personally, they may need dividends, remuneration, a share transaction or some other formal extraction mechanism.

The original recommendation was intended to produce a different outcome. Temporary finance corresponding to the positive capital balances would support the restructuring immediately before incorporation, the couple would provide equivalent finance to their new company, and the company would clear the temporary external finance. The external lender would cease to be owed anything, while the company would be left owing the corresponding amount to the couple.

The continuing position was never intended to be that an elderly couple owed a lender a substantial amount for the remainder of their lives. It was intended to be that their property company owed a substantial amount to them.

Why the temporary finance was so important

The correspondence reveals that the wife became concerned that she and her husband might not live long enough to repay the proposed bridging finance. Given their health concerns, that fear was entirely understandable if she believed that they were being asked to assume conventional long-term borrowing.

That was not the intended commercial effect of the recommendation. The external finance was designed to be temporary and was ordinarily expected to be repaid almost immediately as part of the implementation. The enduring balance would run in the opposite direction because the company would owe money to the couple through their loan accounts.

The distinction could have been explained in one straightforward sentence: the couple were not intended to remain in debt to the lender; their company was intended to remain in debt to them.

The available correspondence strongly suggests that this crucial point had not been understood when the couple decided to withdraw from the capital-account restructuring. Whatever conversations took place, the wife appears to have believed that rejecting the temporary borrowing would protect her and her husband from a debt they might carry for the rest of their lives.

The terrible irony is that abandoning the temporary finance may instead have deprived them of the company debt that was intended to provide liquidity and financial security during those later years.

What appears to have happened following the later advice

The wife subsequently obtained advice from another barrister and decided that she and her husband would not proceed with the capital-account element of the restructuring. The incorporation itself nevertheless appears to have continued, tax returns were prepared by reference to the later advice and outstanding Land Registry work was eventually completed through another provider.

We have not seen the subsequent barrister’s full written opinion, instructions or file. It is therefore possible that the barrister was asked only a narrow question, was not given the original recommendation or partnership accounts, or expressly warned the clients about consequences which have not appeared in the correspondence available to us.

Those possibilities must be acknowledged. They are also why we have not named the subsequent barrister or stated that professional negligence has already been established.

Nevertheless, if the later adviser recommended abandoning the temporary financing without understanding why it formed part of the wider restructuring, the advice may have solved the wrong problem. It may have removed a perceived long-term liability which was never intended to remain outstanding, while simultaneously preventing the creation of the creditor balance that the couple needed.

Any competent review of the arrangement as a whole should have addressed several basic commercial questions. The adviser needed to establish how long the external finance would remain outstanding, who would owe money to whom following completion, what would happen to the couple’s positive capital balances if the financing step was removed, and what alternative mechanism would preserve access to money for future care.

If no replacement was provided, the couple may have been advised to discard the very element of the plan that addressed one of their most important objectives.

We do not blame the couple for relying upon professional advice

We want to be unequivocal about this. Property118 does not blame the couple for consulting another professional, questioning the original recommendation or deciding to act upon the later advice they received.

Clients must lead their own decisions. Professional advisers are there to explain, test and validate those decisions, rather than to take control of them.

However, describing a decision as client-led does not absolve an adviser from responsibility for the quality of the advice on which it was based. A lay client cannot be expected to understand the interaction between partnership capital accounts, temporary finance, director’s loans, Incorporation Relief, company law and the accounting treatment of the business transfer.

Nor can a client reasonably be expected to arbitrate between different barristers and identify which interpretation is correct. If a regulated professional recommends that one element of an integrated transaction should be removed, it is the professional’s responsibility to understand the purpose of that element and explain the consequences of removing it.

The clients had already consulted Property118 and Cotswold Barristers. If the subsequent adviser disagreed with the original recommendation, that adviser was perfectly entitled to say so, but should have considered the entire arrangement and explained what commercial objective would be lost.

On the information presently available, our concern and criticism are therefore directed at the later professional advice, not at the husband and wife who relied upon it.

The possible consequences for the couple

The couple may still own substantial economic value through their shares. Their capital has not necessarily disappeared, and it would be inaccurate to suggest that it can never be accessed.

The real problem is that the straightforward route intended by the original recommendation appears not to exist.

Had the company owed them money through properly constituted loan accounts, it could potentially have repaid those balances as cash became available. Without those loan balances, the company must identify another lawful means of paying money to its shareholders.

Dividends are one possibility, but a company can only make distributions from profits legally available for that purpose. A company may own valuable properties while having insufficient accumulated realised profits or insufficient cash to make the payment its shareholders need.

Salary or directors’ fees may be possible, but those payments would ordinarily be taxable as earnings and could involve National Insurance contributions. That is not commercially equivalent to repaying capital that the couple had already accumulated within their former partnership.

A formal reduction of capital or share premium might provide another route, but that involves company-law procedures and careful consideration of the tax treatment. A company purchase of its own shares may also be possible in appropriate circumstances, although it has its own legal conditions and could alter the couple’s ownership position.

The company could sell or refinance properties to generate cash, but that only addresses the first half of the problem. After raising money inside the company, the couple would still need an appropriate mechanism for transferring it into their own hands.

The distinction becomes especially important if money is required urgently for care. A valuable property company does not itself pay a personal care invoice, and substantial property wealth is of limited immediate assistance unless cash can be raised and lawfully extracted.

This is why the original director’s loan objective was so commercially significant. It was intended to provide a continuing route through which the couple could recover their accumulated capital without having to dismantle the business or rely solely upon taxable remuneration and dividends.

Why the loan cannot simply be recreated afterwards

It might appear that the problem could be solved by asking the company’s accountant to enter the missing loan balance into the accounts. Unfortunately, accounting records must reflect transactions that genuinely occurred and cannot create a debt retrospectively merely because the parties now wish that the transaction had been structured differently.

There is also an important Incorporation Relief issue. Section 162 of the Taxation of Chargeable Gains Act 1992 can defer gains where a qualifying business is transferred to a company in exchange for shares, but the relief may be restricted where the transferor receives other consideration.

The First-tier Tribunal recorded that simply converting a partner’s positive capital account into a director’s loan as part of the consideration on incorporation could restrict Incorporation Relief and create an immediate Capital Gains Tax charge. The sequencing and temporary finance therefore mattered because the arrangement was intended to preserve access to capital without producing that different tax result.

Any attempt to repair the position must consequently start with the legal documents, actual money movements, partnership accounts, company accounts and tax returns. The answer cannot safely be manufactured by inserting a journal entry which does not reflect what actually happened.

The Tribunal has since confirmed the commercial purpose

On 31 July 2026, the First-tier Tribunal allowed the appeals brought by Property118 and Cotswold Barristers against HMRC’s allocation of Scheme Reference Numbers and ordered those reference numbers to be cancelled. The Tribunal was deciding the DOTAS dispute and did not determine the personal tax position of every individual client, so the judgment should not be presented as doing more than it did.

However, the Tribunal considered the temporary finance and resulting company loan accounts in detail. It found that there was nothing unusual or contrived about receiving short-term finance from an independent lender and using those funds to finance the company by way of directors’ loans.

Most importantly for this couple, the Tribunal identified the underlying commercial purpose as preserving the owners’ ability readily to access capital they had previously provided to their business. It also found that the deliberately short life of the temporary funding, potentially only a day, did not itself make the steps abnormal or contrived.

Those findings provide powerful independent support for the commercial rationale behind the original recommendation. The short life of the finance was not a defect which left the clients with enduring external borrowing. It was an integral part of creating the continuing loan balance owed by the company to them.

The wife’s fear was that she and her husband might die before the external loan was repaid. The intended arrangement, now examined and understood by the Tribunal, was that the external loan would be repaid almost immediately and that the company’s debt to the couple would remain.

Should the couple consider a professional-negligence claim?

In our view, the circumstances are sufficiently serious that the couple should consider obtaining advice from an independent solicitor specialising in professional negligence. That does not mean that a successful claim can be assumed, but it does mean that the later advice, the instructions provided and the financial consequences should be reviewed by somebody entirely independent of Property118, Cotswold Barristers and the subsequent adviser.

A professional-negligence claim would ordinarily require the couple to establish that the adviser owed them a duty, that the advice fell below the standard reasonably expected, that they acted differently because of that advice and that the breach caused a measurable loss. The exact scope of the barrister’s instructions would be central because the court would need to determine what risks and consequences the barrister had undertaken responsibility for considering.

Potential loss might include the reasonable cost of investigating and rectifying the position, additional professional fees, additional tax or financing costs, or other financial consequences of losing the intended creditor balances. It would not be sufficient merely to show that the outcome is inconvenient or worrying. The loss would need to be identified, attributed to the advice and valued.

The couple should obtain the barrister’s complete file, including the instructions, written opinions, attendance notes, correspondence and documents reviewed. They should also preserve all emails, forum messages, partnership accounts, company accounts, tax returns, Land Registry documents and communications with every professional involved.

All practising barristers are required to have professional indemnity insurance. The Professional Negligence Pre-Action Protocol encourages a potential claimant to send a preliminary notice as soon as there is a reasonable prospect of a claim, setting out the grievance and asking the professional to notify their insurers.

The couple should not delay while the position is investigated because statutory limitation periods continue to run. Contract and tort claims commonly have six-year primary limitation periods, although negligence claims involving damage discovered later may have an alternative three-year period running from the relevant date of knowledge. The precise calculation is fact-sensitive and should be considered by their independent solicitor.

A service complaint to the barrister or chambers, followed where appropriate by a complaint to the Legal Ombudsman, may also be available. That route is separate from a court claim for damages and has shorter time limits, so it should not be treated as a substitute for immediate legal advice.

What should happen now

The couple’s position must now be reconstructed from the surviving documents rather than from anybody’s recollection of what was intended. The review should compare the original commercial objectives with the legal steps actually completed, the accounting entries made and the tax returns subsequently filed.

Particular attention should be given to the capital accounts of both husband and wife, the consideration recorded for the partnership business, the shares and share premium issued by the company, any liabilities assumed or indemnified, and whether any genuine amount is already recorded as owed to either partner.

The subsequent barrister’s advice must then be examined to establish what information was provided, what question was asked, whether the integrated nature of the recommendation was understood and whether the loss of the intended company loan balances was explained. If the adviser recommended abandoning the temporary finance, the file should reveal what alternative was proposed to protect the couple’s need for liquidity.

The purpose of that review should not be to rewrite history or create transactions that never occurred. It should be to determine the couple’s true position and identify whether a lawful capital reduction, share reorganisation, refinancing or other reconstruction could now restore some of the flexibility they originally wanted.

There may still be a satisfactory solution, but it is likely to involve further professional work, expense and uncertainty. If those costs and consequences arose because later advice dismantled an integral part of the original recommendation without preserving its commercial purpose, it is entirely reasonable to ask whether the responsible adviser and their professional indemnity insurer should meet them.

The clients followed professional advice and should not be blamed

This husband and wife did not set out to create an artificial arrangement or to place themselves in a precarious financial position. They had built a genuine property business together and wanted to incorporate it in a way that supported business continuity, succession and access to capital as they grew older.

They obtained advice from Property118 and Cotswold Barristers, and they later obtained further professional advice when they became concerned. They were entitled to do so, and they were entitled to rely upon regulated professionals to understand the interaction between each part of the transaction.

We do not blame them for the decision they made on professional advice. Our deep concern is that the later advice appears to have caused them to abandon the very mechanism intended to prevent their accumulated capital from becoming difficult to access, while the wider incorporation continued.

If the subsequent adviser misunderstood the purpose of the temporary finance, failed to examine the whole arrangement or recommended removing it without protecting the clients’ original commercial objective, responsibility for the consequences should not be shifted onto the husband and wife.

They wanted their business to be secure, manageable and capable of supporting them if their health deteriorated. Instead, they appear to have been left owning valuable shares in a property company while facing uncertainty about how they can recover the capital they deliberately wanted to preserve for their own future.

That is an appalling predicament for any client to be left in after following professional advice. It deserves a complete independent investigation, a practical attempt to repair the damage and, if the evidence supports it, proper compensation from those responsible.