Section 162 incorporation relief in crisis

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Section 162 incorporation relief in crisis

Securing clarity and stability in the application Section 162 incorporation relief for property investment businesses: Why the industry needs updated guidance and consistent interpretation.

Over the past decade, UK landlords and their advisers have faced growing uncertainty in how Section 162 incorporation relief is interpreted and administered. What was once a relatively stable area of tax law has become increasingly unpredictable, with significant impacts on landlords, advisers, lenders and the wider private rented sector.

This statement highlights several systemic issues that have emerged. It is not about any individual case or taxpayer. It is about the need for clarity, transparency and modernised guidance so that the industry can operate confidently and fairly under a consistent and consistent set of rules.

Withdrawal of pre-transaction clearance without replacement

Until 2016, advisers could request non-statutory clearance on factual matters relevant to incorporation relief. When this route was withdrawn without public consultation, and without any replacement mechanism, taxpayers lost the only formal way to obtain certainty on issues such as:

• business status,
• the treatment of liabilities,
• beneficial ownership on transfer, and
• the interaction with commercial refinancing requirements.

For a tax relief that is automatic rather than elective, the absence of any pre-transaction certainty mechanism has created deep structural vulnerability. Incorporation activity increased significantly after Section 24, yet the system designed to support certainty effectively contracted.

The gap between published guidance and operational practice

In recent years, practitioners have encountered situations in which HMRC’s operational stance differs from what is stated in published manuals and long-established professional commentary. Several examples illustrate this widening gap.

Example A — Beneficial interest transfers and Section 162

Professionals have reported receiving indications from HMRC that transferring the beneficial interest in property does not qualify for incorporation relief, even when the entire business is transferred as a going concern and where economic ownership passes to the acquiring company before legal title is updated during refinancing.

This position is not reflected in legislation, case law, or HMRC’s published manuals, which historically recognise the distinction between beneficial ownership and legal title. Without clear guidance, advisers cannot be certain how HMRC expects incorporations to be documented in real-world lending environments.

Example B — FOI evidence of agreed HMRC manual updates that remain unpublished

A recent Freedom of Information response confirmed that HMRC has internally agreed significant updates to its manuals relating to incorporation relief. These updates include a replacement version of CG65745, which has not yet been published despite many months having passed since internal approval.

Example C — Indemnities for ‘taken-over’ liabilities.

HMRC officers have, in some enquiries, indicated that indemnities for liabilities “taken over” by a company on incorporation are unacceptable.

This appears difficult to reconcile with HMRC’s own published manuals, including both the existing published guidance and the new unpublished version connected to ESC D32, which explains that indemnities are “normally” the accepted commercial mechanism where liabilities are transferred economically at incorporation, i.e. before legal transfers and refinancing is complete.

Long-established commercial practice and HMRC’s own manuals align on this point; recent operational positions do not, creating considerable uncertainty for taxpayers and advisers.

Example D — Disparity between HMRC manuals and Simon’s Taxes commentary

The leading professional commentary, Simon’s Taxes (notably B9:112 and B9:114), provides long-standing guidance on:

• the conditions for incorporation relief,
• the treatment of liabilities,
• the role of indemnities

Historically, HMRC’s published manuals aligned closely with this commentary. Yet practitioners have encountered interpretations that diverge significantly, suggesting, for example, that economic ownership cannot transfer without simultaneous legal title transfer.

Example E – New financing at incorporation

A further HMRC viewpoint, expressed in at least one formal explanation of its technical position, stated that where a company raises new borrowing at the point of incorporation and uses that borrowing to repay the proprietor’s existing mortgages, part of the consideration may be treated as cash provided by the company. This reduces the extent to which the transfer is regarded as being in exchange for shares and therefore may restrict the amount of gain eligible for rollover under Section 162.

This does align with the warnings in Simon’s Taxes at B9:114, however, many advisers and taxpayers have long understood that ESC D32 existed to prevent “dry tax” where liabilities were economically transferred to the company as part of a genuine business incorporation.

The unpublished version of CG65745 continues to leave room for ambiguity on this point.

Example F – Capital account withdrawals: Simon’s Taxes and BIM45700 vs operational stance

Impact across the sector

• timely publication of agreed manual updates,
• transparent communication where HMRC’s interpretation has developed, and
• alignment between published guidance and operational enforcement.

• Landlords face uncertainty over past and future incorporations.
• Advisers face heightened professional-risk exposure when guidance lags behind operational interpretation.
• Lenders encounter delays and documentation challenges, complicating refinancing and reducing liquidity.
• The wider private rented sector suffers from reduced confidence at a time of already significant regulatory pressure.

Uncertainty on this scale can distort decision-making and undermine fair administration.

What the industry needs

To restore clarity and stability, the sector urgently requires:

a. Updated and published guidance

Reflecting modern business practices, lending constraints, refinancing cycles and beneficial ownership mechanics.

b. A clear route to pre-transaction certainty

Whether statutory or administrative, the current void is unsustainable.

c. Prospective, not retrospective, application of new interpretations

Where HMRC’s understanding develops, it must be applied to future transactions, not retrospectively.

d. Alignment between manuals, professional commentary and operational practice

Taxpayers should be able to rely on published guidance when structuring legitimate commercial transactions.

A constructive way forward

The purpose of this statement is to highlight systemic issues and encourage constructive dialogue between:

• HMRC,
• professional bodies,
• technical practitioners,
• lenders, and
• policymakers

Thousands of landlords have incorporated their businesses in good faith, based on the published guidance and professional understanding available at the time. They deserve clarity, consistency and fair treatment. A stable framework benefits everyone.

Supporting evidence

Simon’s Taxes B9:112 – LINK

Simon’s Taxes B9:114 – LINK

HMRC FOI response – LINK

Current CG65745 manual including ESC D32 as of 05/12/2025 – LINK

BIM45700 – LINK

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Subsidence and ground movement – What landlords need to know

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Subsidence and ground movement – What landlords need to know

Subsidence is one of the most disruptive and time-consuming perils a landlord can face. Unlike a burst pipe or storm damage, ground movement claims rarely resolve quickly. Investigations, monitoring and structural works can span many months, sometimes years, with cash flow consequences if the property is uninhabitable. This guide explains causes, warning signs, how insurers assess claims, and the steps landlords can take to protect their position.

What Counts as Subsidence, Heave and Landslip?

• Subsidence – downward movement of the ground supporting a building, often due to clay shrinkage in dry spells, tree root desiccation, or washing-out of fines from leaking drains.
• Heave – upward movement of the ground, commonly when trees are removed and clay rehydrates.
• Landslip – movement of soil or rock down a slope. Coastal and hillside properties are more exposed.

Policies that cover “subsidence, heave and landslip” usually treat them together under the buildings section, often with a higher subsidence excess (for example £1,000).

Common Causes in Rental Stock

• Clay soils shrinking in hot, dry summers and re-swelling in winter.
• Trees and large shrubs close to foundations (willow, poplar, oak are frequent offenders).
• Defective drains eroding or softening bearing strata beneath foundations.
• Historic ground conditions, made ground, or nearby excavations and soakaways.

Warning Signs Tenants and Agents May Spot

• Stepped cracking through brickwork or at window/door corners (typically 3mm+ and tapering).
• Doors and windows sticking; new gaps at skirtings, coving or between extensions and the main house.
• Rippling or cracking where different building sections meet, especially after a dry summer.

Ask tenants to report changes promptly. Early notification helps limit damage and speeds insurer engagement.

How Insurers Assess Subsidence Claims

Expect a structured process:

1. Initial triage – desktop review and request for photos, tenancy details and history.
2. Engineer appointment – insurer’s consultant undertakes site inspection. Drain CCTV surveys are common.
3. Monitoring – crack gauges or precise level monitoring over one or more seasons to confirm progressive movement.
4. Cause and remedy – tree management (pruning/removal), drain repair, localised or full underpinning if required.
5. Making good – repairs to finishes, doors, windows and services; decorations at the end.

Because movement is seasonal, monitoring can take 6–12 months or longer. Set realistic expectations with tenants and lenders early.

What’s Usually Covered (and What Isn’t)

• Covered – repair of insured damage to the building caused by subsidence/heave/landslip; necessary investigations; reinstatement after stabilisation.
• Often excluded – patios, drives, boundary walls and fences unless the main home is damaged; poor workmanship/defective design; general settlement or bedding-in of new extensions.
• Contents – structural movement rarely triggers contents cover except for resultant damage (for example a cracked landlord-owned hob if the worktop distorts).

Loss of Rent – Set Adequate Time Limits

Properties are not always uninhabitable during monitoring, but significant works (underpinning, piled beams, major drain excavations) can require decanting tenants. Ensure your policy has realistic loss-of-rent limits by both sum and duration. For complex cases, 12 months may be insufficient; some insurers offer 18–24 months for larger risks.

Evidence Pack That Speeds Acceptance

• Date-stamped photos showing crack patterns and progression.
• Drain CCTV reports and plans (if available).
• Tree report listing species, age, distance from foundations and recommended management.
• History of extensions, prior movement or past underpinning (full disclosure is essential).
• Tenancy details and access arrangements for surveys and works.

Trees: Prune, Pollard or Remove?

Insurers often start with arboricultural management. Pruning or pollarding can reduce moisture demand, but sometimes removal is required. Beware unintended heave after removing large water-demanding trees on clay. Engineer and arborist advice should be coordinated and recorded.

Underpinning and Post-Claim Realities

• Underpinning is a last resort. Localised solutions (drains, trees) are preferred where effective.
• After underpinning, future insurance placement may require full disclosure and evidence of completion; some markets rate properties with prior movement differently.
• Keep a complete claim dossier (engineer’s reports, monitoring results, method statements, completion certificates) for renewals and any future sale.

Common Pitfalls That Derail Claims

• Late notification – delaying contact with the insurer can prejudice investigations.
• Non-disclosure – failing to mention historic movement, underpinning or previous tree issues.
• Unauthorised works – removing trees or starting structural repairs before insurer approval.
• Assuming “settlement” is covered – normal settlement, shrinkage or thermal movement is typically excluded.

Prevention and Risk Reduction

• Survey soil type and nearby trees when purchasing; adjust planting and maintenance plans for clay sites.
• Undertake drain surveys after major leaks or ground soft spots; repair promptly.
• Control vegetation near foundations; follow arborist schedules.
• Log inspections with photos; act early on cracks that open/close seasonally or exceed ~3mm.

Final Thoughts

Subsidence claims demand patience, documentation and coordination between landlord, tenants, engineers and the insurer. With early notification, clear evidence and realistic loss-of-rent limits, most cases resolve satisfactorily. Treat trees, drains and disclosure as part of your risk management, and keep a complete paper trail from first crack to completion certificate.

Request your quote or call-back

The most efficient way to get a personal quote with the best price and cover possible is to call the team on 01832 770965 so we can focus on your enquiry when you are ready and sitting down with your portfolio details to hand.

Alternatively, you can use the form below to request one of our team to give you a call back.

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Publication date: Tuesday 9 December 2025

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Hamptons forecasts modest 2026 house price growth

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Hamptons forecasts modest 2026 house price growth

House prices are set to rise modestly next year by 2.5% across Great Britain in Q4 2026, Hamptons says.

It is also predicting that inflation will ease, and mortgage rates will be lower.

The firm says transactions should hold near 1.15 million as improving affordability counters economic and tax pressures.

However, the outlook becomes more fragile from 2027 when Hamptons thinks political uncertainty and higher borrowing costs will slow growth to 2% in Q4 2027 and 1.5% in 2028.

Modest house price rises

Aneisha Beveridge, the firm’s head of research, said: “The housing market has always mirrored the mood of the nation.

“While the headlines have been dominated by uncertainty, underneath it all, we’ve seen signs of resilience.

“Inflation is easing, mortgage rates are falling, and affordability is improving, which should support modest price growth next year.”

She added: “But it’s hard to ignore the growing drag of taxation and politics.

“London, which historically leads recoveries, is being held back by higher stamp duty and broader tax anxieties, locking some owners into their homes and others out of buying them.”

Base rate cuts predicted

Hamptons says that since prices hit their post-crash floor in 2009, the Midlands is on track to outperform London by next year.

The North West and West Midlands are also expected to pass the capital by the end of 2027.

Next year, the agency believes inflation will fall faster than expected, allowing two or three base rate cuts.

By the end of 2026, Hamptons expects the Bank Rate to settle around 3.25%, with typical mortgage deals stabilising near 4%.

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