The First-tier Tribunal has determined that Property118's Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) were not notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. This ruling follows more than two years of HMRC allegations and discovery assessments against clients who used these incorporation arrangements.
HMRC had alleged that the Capital Account Restructure involved contrived or abnormal steps. However, after examining various aspects including short-term borrowing, the independent lender, fund movements, directors’ loan arrangements, and the commercial purpose, the Tribunal concluded there was “nothing unusual or contrived” about the steps.
The Tribunal also accepted that landlords had genuine non-tax reasons for preserving their existing finance arrangements when incorporating their property businesses. These reasons included valuable mortgage rates, substantial early repayment charges, less favourable company lending terms, and properties that lenders would not refinance.
The SIS structure allowed the business and beneficial ownership of properties to transfer to a company, while legal titles and existing mortgage arrangements could temporarily remain in the names of individual owners where commercially necessary. The CAR structure addressed the issue of accumulated personal capital within a property business upon incorporation.