A recent Property118 Tribunal judgment has cast doubt on whether full Incorporation Relief was available to landlords who replaced personal or partnership mortgages with new company borrowing during incorporation. Many landlords were advised that this refinancing method was the standard approach.
The judgment suggests that if a company's new borrowing was used to pay off existing landlord debts, HMRC could argue the company replaced those liabilities rather than taking them over. This could mean that Extra-Statutory Concession D32 may not apply, potentially making part of a deferred gain chargeable at the time of incorporation.
This could lead to affected landlords facing Capital Gains Tax and interest on transactions arranged by professional advisers. The judgment, which concluded on 31 July 2026, did not determine the final Capital Gains Tax position for individual landlords but provides a clear reason for HMRC, advisers, and landlords to review refinancing cases.
The distinction between immediate company refinancing and preserving or taking over existing business liabilities was central to the Tribunal's reasoning. Professional advisers can no longer safely treat this distinction as irrelevant. Warnings about refinancing risks and the application of ESC D32 have previously appeared in professional tax commentary and were raised with HMRC by the Chartered Institute of Taxation in 2024.