We have covered the dispute between Property118, Cotswold Barristers and HMRC throughout. The latest decision is an important victory for the promoters, but it does not settle whether the underlying tax planning works.
The First-tier Tribunal has cancelled the Scheme Reference Numbers issued by HMRC. Landlords should still be clear about what was decided, what remains unresolved and why individual HMRC enquiries continue.
(Reading Time: Approx. 5 minutes)
Topics Discussed:
- The reasons the Tribunal cancelled the Scheme Reference Numbers.
- Why the ruling does not validate the tax planning used by individual landlords.
What Has Happened So Far
The dispute concerns two property incorporation arrangements known as the Substantial Incorporation Structure, or SIS, and the Capital Account Restructure, or CAR.
These arrangements were promoted to landlords moving property businesses into limited companies. Claimed benefits included incorporation relief, Stamp Duty Land Tax partnership relief and relief from mortgage interest restrictions.
In February 2024, HMRC issued Scheme Reference Numbers under the Disclosure of Tax Avoidance Schemes rules, known as DOTAS. In July 2024, it also issued a stop notice preventing Property118 from continuing to promote the arrangements.
Property118 and Cotswold Barristers appealed. Following a ten-day hearing in February 2026, the First-tier Tribunal released its decision on 31 July 2026. The appeals were allowed and the Scheme Reference Numbers were cancelled.
This was a genuine win, but only on whether the arrangements met the specific DOTAS descriptions relied upon by HMRC.
What DOTAS Means
DOTAS is a disclosure regime. It helps HMRC identify certain tax arrangements early so it can investigate them. An arrangement can be notifiable and still work. Equally, it can avoid notification and still fail when its tax treatment is examined.
The Tribunal was not deciding whether landlords qualified for incorporation relief, whether Stamp Duty Land Tax relief applied or whether valid director loan balances were created. It was deciding whether SIS and CAR matched particular descriptions in the DOTAS legislation.
Why did the Appeal Succeed?
HMRC relied on three descriptions. The descriptions concerned standardised tax products, premium fees and financial products involving contrived or abnormal steps.
HMRC proved that the documents were highly standardised. The Tribunal accepted that users generally received template documents completed with few changes.
It also accepted that tax advantages were important. Reducing mortgage interest restrictions and obtaining incorporation relief were found to be main purposes of the arrangements. However, the relevant DOTAS description required tax to be the main purpose, rather than simply a main purpose.
The Tribunal accepted that many landlords also wanted to avoid immediately refinancing existing mortgages. It treated this as an important commercial objective, meaning tax was not necessarily the single most important reason.
HMRC also argued that CAR included premium fees linked to the tax advantage. The Tribunal disagreed and treated the bridging and brokerage charges as ordinary commercial fees.
HMRC’s final argument concerned CAR’s circular financing. A bridging lender advanced money to the landlords. The landlords lent it to their new company. The company then repaid the bridging lender, often on the same day.
The Tribunal viewed the individual steps as ordinary transactions rather than contrived or abnormal. HMRC therefore lost on all three descriptions.
What the Tribunal Did Not Decide
The Tribunal did not decide:
- that SIS or CAR works for any individual taxpayer
- whether a landlord carried on a qualifying business for incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992
- whether the whole business was transferred as a going concern, whether a genuine partnership existed or whether Stamp Duty Land Tax partnership relief was correctly claimed
- the effectiveness of declarations of trust, director loan balances, company accounts or tax returns
Mortgage conditions were not considered. The judgment does not determine whether lender consent was required or whether mortgage terms were breached. Most landlords who gave evidence remained under HMRC enquiry or assessment. The Tribunal recorded that those investigations were separate and unaffected by the DOTAS appeal.
Why CAR Still Needs Caution
CAR is likely to attract the greatest scrutiny because of its circular financing. HMRC argued that the landlord and company ended in broadly the same economic position, except that a director loan balance had been created. That balance could allow funds to be withdrawn from the company without an immediate income tax charge.
Although the Tribunal considered the individual steps ordinary, independent commentary has questioned whether the complete prearranged sequence should have been examined as a whole. Critics also argue that the Tribunal may have focused too heavily on avoiding refinancing rather than the tax-driven design of the arrangement.
This does not mean HMRC will succeed on appeal. It does mean landlords should not treat CAR as having received judicial approval.
Why CAR Still Needs Caution
CAR is likely to attract the greatest scrutiny because of its circular financing. HMRC argued that the landlord and company ended in broadly the same economic position, except that a director loan balance had been created. That balance could allow funds to be withdrawn from the company without an immediate income tax charge.
Although the Tribunal considered the individual steps ordinary, independent commentary has questioned whether the complete prearranged sequence should have been examined as a whole. Critics also argue that the Tribunal may have focused too heavily on avoiding refinancing rather than the tax-driven design of the arrangement.
This does not mean HMRC will succeed on appeal. It does mean landlords should not treat CAR as having received judicial approval.
Could HMRC Appeal?
HMRC has 56 days from the decision to seek permission to appeal to the Upper Tribunal. The expected deadline is around 25 September 2026. HMRC had not confirmed whether it would appeal.
The decision is from the First-tier Tribunal and is not binding precedent. Another tribunal could reach a different result. Even without an appeal, HMRC can continue investigating individual landlords over Capital Gains Tax, incorporation relief, Stamp Duty Land Tax, interest deductions and the legal documents.
The Property118 Relaunch
Following the judgment, Property118 resumed marketing its incorporation consultancy and promoted the decision as a major victory. Its materials include some caveats, but the DOTAS result should not be treated as legal clearance for SIS or CAR.
It confirms only that HMRC failed to prove that the arrangements met the particular disclosure descriptions argued in this case. Anyone considering the relaunched consultancy should obtain independent advice from a qualified and insured adviser who did not design or sell the arrangements.
What Existing Clients Should Do
Landlords under HMRC enquiry should gather all implementation documents. These may include declarations of trust, sale agreements, partnership records, company accounts, tax returns, bridging agreements and director loan documents. Their position should be reviewed independently using the actual facts of the property business.
Mortgage conditions should also be checked for consent or notification requirements. Clients who believe the planning may not achieve the promised result should consider whether they have a claim against the businesses or professionals involved. Limitation periods may be important. Many implementations took place between 2017 and 2020, so some clients may already be approaching or passing key deadlines.
Summary
Property118 and Cotswold Barristers achieved a genuine victory when the First-tier Tribunal cancelled the Scheme Reference Numbers issued under DOTAS. However, the judgment dealt only with disclosure. It did not decide that incorporation relief, Stamp Duty Land Tax relief or the CAR director loan planning works for any individual landlord.
HMRC enquiries remain active and each case depends on its own facts, documents and tax reporting. A possible appeal and further litigation mean the position may change again.
If you have received an HMRC enquiry, assessment, closure notice or penalty, or believe you have grounds to appeal an HMRC decision, seek specialist advice with us at Tax Expert immediately.
Fill out our form here, email us at info@taxexpert.co.uk, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel
