Advisers are being urged to provide clear explanations to landlords considering property business incorporation, especially when challenging previous advice. The Property 118 Limited and Cotswold Barristers Limited v HMRC [2026] UKFTT 1111 (TC) tribunal ruling has brought attention to the importance of addressing HMRC guidance, published judgments, and transaction documents when recommending changes.
The tribunal ruling, which allowed appeals and cancelled HMRC's scheme reference number decisions, specifically concerns the Disclosure of Tax Avoidance Schemes (DOTAS) regime. It does not determine every client's eligibility for relief or the correct implementation of every transaction.
Key passages from the judgment include the recognition that Substantial Incorporation Structure (SIS) can preserve full Incorporation Relief where refinancing may not. The tribunal also addressed commercial reasons for retaining existing mortgages and choosing when to refinance, and rejected the argument concerning premium fees for Capital Account Restructure (CAR), recognising commercial financing fees. Furthermore, the ruling examined CAR's purpose and rejected the contention that its financing steps were contrived or abnormal.
The way existing mortgages are handled during incorporation can affect the tax position. Extra-Statutory Concession D32 allows qualifying business liabilities to be disregarded for Capital Gains Tax purposes, but it has conditions and does not extend to personal liabilities. Advisers recommending immediate refinancing or dismissing capital restructuring are expected to explain how their proposals address published warnings and how clients will retain access to their capital.