Mortgage Broker Article on Incorporation Relief Misses Critical Warnings

so, in laymans terms what does this mean for the people whom have used your services to go llp from a personal BTL?

Bit too jargony for my tiny brain 😉

I queried the Simon’s taxes quote with a qualified tax advisor because I have often seen it quoted on here. The answer was that if someone could clearly show that there were acting in accordance with what parliament intended there would not be any deleterious consequences. You would have to know precisely what legislation would allow you do so if you were asked by HMRC to account for your advice but parliament intends that this avenue is open to business owners.

Reply to the comment left by Underappreciated Landlord at 25/03/2025 - 09:33
It doesn't mean anything much to our clients. This article was shared as a warning to the mortgage industry and any landlords considering incorporation.

Property118 followed the HMRC manuals and industry best practice manuals in both letter and spirit. Sadly, others are not doing so.

Reply to the comment left by Susan Bradley at 25/03/2025 - 09:59
That's a very brave statement for your adviser to make, especially since HMRC has not been able to provide an answer to the questions raised by the Chartered Institute of Taxation for well over a year now.

Perhaps HMRC do not want to accept that their manuals and expert industry best practice books have been wrong for over 50 years. More likely though, in my opinion, they just don't know what to do about the fact that they have been turning a blind eye to poor advice and allowed incorporation relief on cases where they should not have done so for decades now (i.e. those cases where new company financing repaid previous private lending), and this whole issue has become extremely embarrassing for HMRC, the professional bodies and the thousands of solicitors, barristers and Accountants that have not advised and operated in accordance with published best practice and HMRC manuals..

Continued …

What’s most frustrating is that this issue has persisted for decades. Incorporation relief was widely granted even in cases where new company borrowing was used to repay personal debt—contrary to both Simon’s Taxes and HMRC’s own guidance in CG65745. Now, instead of addressing the root issue or correcting the record, HMRC appears to be doubling down, possibly due to embarrassment or internal uncertainty.

Our role isn’t to rewrite history—it’s to ensure our clients act in line with published guidance and longstanding best practice. That’s what we’ve done, and it’s why we continue to defend them.

It's seldom that Mark and I agree on anything much, but have to say that when it comes to Sean Hughes's selective appreciation of the facts I'm fully at one with Mark's thoughts.

Although I can't prove it, I reckon that said Sean Hughes was as much behind Dan Neidle as anyone else might have been in bringing so much unnecessary pain to the landlord sector, something which his latest article sure as hell doesn't help with.

He seems to revel in treating everyone bar him as the enemy.

Reply to the comment left by Mark Alexander - Founder of Property118 at 25/03/2025 - 13:16
When then is it considered to be safe to rearrange the financing? If you cannot do it at incorporation when does the guidance and manuals say that you can do so?

The seems to be a bit of a storm in a teacup to me. Mr Hughes explanation of the relief available on incorporation makes clear that it is only a basic explanation and that professional guidance should be sought before making any decisions. The comment about re-mortgaging at the time of incorporation comes from MF Brokers rather than him. I'm not sure what the concern is here and understood that the actions taken by HMRC with regard to Property 118 and Less Tax 4 Landlords related to two different issues. I think these are muddying the waters and the sooner these matters are clarified the better it will be for all.

Reply to the comment left by Susan Bradley at 25/03/2025 - 17:10
That's an excellent question because the manuals and industry guidance are all silent on the point of how long after the creation of the indemnity can the company discharge that indemnity on the basis of refinancing. My opinion, in the absence of any HMRC or accepted industry guidance to the contrary, is that the discharge of the indemnity could occur literally one second after it is in place. It's a bit like a simultaneous exchange and complete in that the reality is that it is physically impossible for both events to actually occur simultaneously.

Reply to the comment left by at 25/03/2025 - 18:35
Thank you for your comment. Only time will tell whether this really is a “storm in a teacup.” One possible outcome—though I hope it doesn't come to pass—is that HMRC decides to revisit every incorporation where new company borrowing was used to repay personal or partnership liabilities, arguing that such loans constitute partial consideration other than in shares, thereby invalidating a potentially substantial element of incorporation relief and creating significant CGT exposures.

I suspect HMRC may avoid that path, not least because it would be extremely difficult to argue—especially in a tribunal—that this hasn’t become an established and accepted practice over several decades.

That said, Property118 supported and followed the guidance that has existed for over 50 years, as set out in HMRC’s own manuals, including CG65745, which confirms that indemnified liabilities can form part of the incorporation without triggering CGT, provided conditions are met. That approach remains legally sound and tax-compliant.

Ideally, HMRC should now respond to the CIOT’s outstanding technical questions and clarify whether repayment of pre-incorporation liabilities using new company borrowing has become a recognised and accepted alternative to the existing guidance. If so, manuals should be updated accordingly—just as HMRC did after the Upper Tribunal’s decision in Elizabeth Moyne Ramsay.

With clearer guidance, Lexis Nexis can then revisit the warning in Simon’s Taxes at B9.114, and professionals and clients alike can proceed with certainty.

Clarity from HMRC would benefit everyone.