The First-tier Tribunal has handed Property118 a significant win against HMRC, and the decision is worth understanding properly. Most of the coverage has either oversold it or undersold it. Here is the balanced version.
What the Case Was About
Property118 and Cotswold Barristers appealed against HMRC’s decision to issue Scheme Reference Numbers against two incorporation structures they sell to landlords.
The first is the Substantial Incorporation Structure, or SIS. This allows landlords to transfer the beneficial ownership of a property portfolio into a limited company while the legal title and mortgage remain in the landlord’s name. The commercial reason for this is practical: many landlords have existing mortgage rates they cannot replicate, face significant early repayment charges, or hold properties that lenders will not refinance on company terms. SIS avoids forcing landlords to replace all existing finance simply to change the names on the Land Registry titles.
The second is the Capital Account Restructure, or CAR. This is built on top of SIS and involves a short-term bridging arrangement that creates a director’s loan account. The commercial purpose is to preserve access to capital the landlord has already accumulated in the business over many years, rather than allowing it to become locked into company shares on incorporation.
HMRC issued Scheme Reference Numbers against both under the Disclosure of Tax Avoidance Schemes rules, known as DOTAS, which require certain arrangements to be reported as notifiable tax avoidance. Property118 appealed. After a ten-day hearing, the Tribunal found in Property118’s favour and cancelled both Scheme Reference Numbers.
What the Tribunal Actually Decided
The Tribunal’s job was to determine whether SIS and CAR fell within the specific statutory DOTAS descriptions HMRC had relied upon. It examined each one and rejected them all.
In doing so, it made a series of substantive findings about the commercial character of the arrangements that deserve to be stated clearly, because they are being either buried or ignored in most of the coverage.
At paragraph 185, the Tribunal found that the CAR steps were “nothing unusual or contrived” and that the arrangements served an underlying commercial purpose. This goes directly to HMRC’s allegation that the CAR structure involved artificial or abnormal steps. The Tribunal examined it and rejected it.
At paragraphs 151 to 166, the Tribunal accepted that landlords had genuine non-tax reasons for preserving their existing mortgage arrangements. Some faced cladding problems. Others held mortgages with rates they could not replace or faced six-figure refinancing costs. These were real commercial constraints, not decoration.
At paragraphs 167 to 173, it accepted genuine non-tax commercial reasons for CAR, including the legitimate objective of retaining access to capital already accumulated in the business.
At paragraphs 179 to 180, it found that the lending and brokerage charges connected with CAR were ordinary commercial charges rather than disguised premiums for obtaining a tax result.
Importantly, the Tribunal also found that tax was a main purpose of the arrangements but not the main purpose, and that some landlords would have used the structures for the non-tax benefits even without the anticipated tax advantages.
These are not minor administrative footnotes. They are express judicial findings about the commercial reality of what Property118 was offering and why landlords used it.
The full judgment is available here: Property 118 Limited & Anor v The Commissioners for HMRC [2026] UKFTT 1111 (TC)
What the Ruling Does Not Settle
The Tribunal’s task was a specific one. It was asked whether DOTAS required these arrangements to be reported, and it found that it did not. This matters, and the findings about commercial purpose are genuinely significant. But there are important things the Tribunal was not asked to decide, and those things remain open.
The ruling does not determine whether each individual landlord is entitled to incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992, every question about SDLT partnership relief, whether a genuine partnership existed, or the application of the general anti-abuse rule to individual cases. HMRC can still raise those arguments in individual cases, depending on the facts.
Separately, two linked lead appeals are already listed before the First-tier Tribunal for October 2026 concerning outstanding substantive tax issues. Unless their scope is established by the relevant proceedings, they should not be taken as determining every issue that may arise in individual cases.
A First-tier Tribunal decision is also not binding precedent in the way that Upper Tribunal or higher court decisions are. HMRC can seek permission to appeal on an alleged error of law.
None of that diminishes the significance of the findings. It simply means that the Tribunal’s decision is one important development in an ongoing legal picture, not the end of it.
The Incorporation Relief Point Worth Watching
Separately from the DOTAS ruling itself, there is a point in the judgment that affects a wider group of landlords than those who used SIS or CAR.
The judgment records HMRC’s view that Extra-Statutory Concession D32 does not cover the refinancing arrangement described at paragraph 23(2), where the new company borrows and pays cash to the owners to enable them to repay their existing finance. This can affect the amount of Incorporation Relief available under section 162 because consideration other than shares may restrict the relief.
The issue extends beyond Property118 users. It also helps explain the distinction examined at paragraph 151(1): for its DOTAS analysis, the Tribunal concluded that SIS could enable full Incorporation Relief which might not be available under a refinancing. That was not a determination of every landlord’s individual entitlement. The consequences depend on the transaction’s facts, documents, treatment of liabilities and consideration.
If this point could apply to your situation, it is worth raising with a qualified accountant or tax adviser before drawing any conclusions.
On the Lender Question
Property118’s own marketing material, quoted in the judgment, told landlords using SIS not to alert their lenders. The Tribunal was not asked to rule on whether SIS breaches mortgage conditions, and it made no general finding about lender consent. Whether your lender’s consent is required, and what the consequences might be, depends on the terms of your specific mortgage. Landlords using SIS should check their individual mortgage conditions with a solicitor.
A Note From Us
Coventry Accommodation is a property management company, not a tax advisory firm. This article is a plain-English briefing for our landlord audience and should not be treated as advice for any individual situation.
Following publication of an earlier version of this article, we received correspondence from Mark Alexander, Founder of Property118, pointing out that several passages gave a misleading impression of the Tribunal’s findings. He was right about three specific points. We had understated the Tribunal’s substantive commercial findings, described the DOTAS outcome too dismissively, and overstated the lender point. This version corrects all three. We are grateful for the feedback.
If you have questions about how this ruling affects your own position, speak to a qualified accountant or tax adviser. If you would like a recommendation to a good local one, get in touch and we will point you in the right direction.
