Property118 puts HMRC manual BIM45700 under FTT scrutiny

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Property118

Property118 puts HMRC manual BIM45700 under FTT scrutiny

Since late 2023, HMRC has argued that financing the withdrawal of a positive capital account balance prior to incorporation of a business is a notifiable tax avoidance scheme under DOTAS legislation.

From our perspective, this makes no sense because that practice is supported by highly regarded industry textbook guidance published by Lexis Nexis, which says as follows …

More importantly, HMRC’s own manual BIM45700 clearly states:

A proprietor of a business may withdraw the profits of the business and the capital they have introduced to the business, even though substitute funding then has to be provided by interest bearing loans. The interest payable on the loans is an allowable deduction. This is on the basis that the purpose of the additional borrowing is to provide working capital for the business. There will, though, be an interest restriction if the proprietor’s capital account becomes overdrawn, see BIM45705 onwards.

Source: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

Important context: Property118 is not currently recommending Section 162 incorporation for landlords with mortgages while legal uncertainty remains over the treatment of mortgage liabilities. Read our current position here: Why Property118 is not currently recommending s162 incorporation to landlords with mortgages

The reason for our current position is not that the underlying principles are wrong, but that HMRC’s current interpretation conflicts with its own published guidance.

The above is intended to serve as a warning not only to landlords, but also to accountants, solicitors, barristers, mortgage brokers, lenders and financial advisers.

What our critics say

Some influencers have suggested that the timing of the financing of capital withdrawn, being so close to the date of incorporation, is abusive. We disagree on the basis that there is no evidence supported by legislation or HMRC manuals to support this stance, hence taking the case to the FTT.

They also argue that using the funds to loan to the company, immediately post-incorporation, and for the company to repay the debt quickly, is also abusive. Again, we disagree based on the same principles.

Finally, our critics have suggested that transferring only beneficial interest at incorporation is also abusive and constitutes a breach of mortgage terms, and that mortgage novation is the only acceptable method. Again, we disagree on the basis that it is common knowledge that taxation follows beneficial interest and that the Law of Property Act 1925 protects the interests of mortgage lenders even if liabilities are indemnified without the lender’s consent or knowledge. Furthermore, novation has not been mentioned in the relevant HMRC manuals since the phrase indemnity was introduced into them over 50 years ago, and in any event, very few, if any, mortgage lenders now offer novation.

Tribunal outcome

We expect the First-tier tribunal to make a ruling later this year, but the losing side could then appeal to the Upper Tribunal and beyond, resulting in the wait for much need clarity potentially being pushed back even further. Meanwhile, these matters continue to frustrate landlords who would like to incorporate their businesses for the reasons explained in HMRC’s GAAR Guidance Part D paragraph 2.2, as follows …

The commercial reasons landlords choose to incorporate their rental property business were also documented in a report published by the Office of Tax Simplification in November 2022.

Source: https://www.gov.uk/government/publications/ots-review-of-residential-property-income

A conversation worth having?

If you are weighing up your own strategy, whether that’s to sell, expand, or restructure to improve profitability, it is worth having a discussion with a Property118 consultant to take a closer look at how your portfolio is structured as a whole now, and to forecast the outcomes based on multiple scenarios.

These conversations are typically most useful for landlords with established portfolios and relatively modest borrowing who are beginning to reflect on how their assets could work more effectively in the years ahead.

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House prices dip in March as annual growth also slows

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Property118

House prices dip in March as annual growth also slows

House prices fell by 0.5% last month, reversing a 0.3% rise in February and leaving the average property value at £299,677, Halifax reveals.

Its data also shows that annual growth slowed down to 0.8%, down from 1.2% in March.

Regional house price differences remain and these are more pronounced, with stronger gains recorded outside southern markets.

Northern Ireland continues to record the strongest annual house price growth, with average values up 8.7% to £224,809.

Scotland also posted an increase of 4.4%, taking the average property price to £222,716.

Regional house prices

Wales saw prices rise by 1.6% over the year, with the typical home now valued at £230,909.

Across England, higher growth remains concentrated in northern regions.

The North East recorded a 5% annual increase, with prices at £184,119, while the North West saw values rise 3.1% to an average of £247,442.

In southern markets, prices moved lower and the South East recorded a 1.9% annual fall to £383,573.

London’s homeowners saw values decline by 1.2% to £536,751.

Housing market slowdown

Amanda Bryden, the head of mortgages at Halifax, said: “The recent slowdown in the housing market reflects the wide uncertainty regarding the conflict in the Middle East.

“Concerns about higher energy prices have pushed up inflation expectations, which in turn led to a rise in mortgage rates, reducing confidence that interest rates will be cut this year and dampening the initial momentum in the market seen at the start of the year.”

She added: “The effect on house prices will largely depend on how long-lasting these pressures prove to be and the wider implications for the economy and unemployment.

“However, the recent increase in UK mortgage rates has been more modest than the sharp rises seen during the mini budget of 2022.”

Property sector reaction

Nathan Emerson, the CEO of Propertymark, said: “We are at an important intersection where we must clearly acknowledge future challenges ahead.

“We started the year with positivity in terms of seeing an uplift in the average number of viewings per available property, coupled with general consumer positivity regarding affordability.

“However, a lot has changed in a short space of time, with numerous sub 4% mortgage deals being withdrawn over the last few weeks as the wider economy adjusts to potential uncertainties.”

Karen Noye, a mortgage expert at Quilter, said: “Looking ahead, the path for house prices will depend largely on how the conflict evolves.

“If tensions ease and energy‑driven inflation pressures recede, mortgage rates could stabilise and drift lower again, supporting broadly flat prices.

“If the conflict drags on, persistently higher mortgage rates are more likely to translate into weaker activity and softer prices, particularly in more rate‑sensitive parts of the market.”

Tom Bill, the head of UK residential research at Knight Frank, said: “What goes up must come down, but for mortgage rates the drop will be more gradual than the sharp increase triggered by the Middle East conflict, even if the two-week ceasefire deal holds.

“Sentiment in the housing market will improve if the war stops, but its longer-term inflationary impact and weaker demand for UK government debt due its tight financial headroom and apparent inability to cut spending means mortgage rates won’t snap back to where they were in February. This will keep demand and house prices in check this year.”

Jason Tebb, president of OnTheMarket, said: “The momentum created by several interest rate reductions over the past year and a half, combined with post-Budget clarity, continues to be in evidence on the ground, with needs-driven buyers and sellers who have put moves on hold focused on transacting.

“With further rate reductions on hold for the short term at least, and the threat of rate rises a concern the longer the conflict in the Middle East continues, those with competitive mortgage offers are keen to proceed before rates edge higher.”

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Nearly 1 in 5 landlords planning to exit the market entirely

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Property118

Nearly 1 in 5 landlords planning to exit the market entirely

A more concerning signal is now emerging from the UK private rented sector, and it goes beyond portfolio adjustments. According to the Property118 Landlord Sentiment Survey Q1 2026, a significant proportion of landlords are not simply reducing their exposure, they are considering leaving the market altogether.

Based on 2,380 completed responses, nearly one in five landlords indicated that they are planning a full exit from the sector. You can review the full dataset here.

The implication is clear: this is not just a rebalancing, it is a withdrawal.

A quiet but meaningful shift

Much of the public discussion around landlords has focused on regulatory change, tax pressure and tenant protections. What has been less visible is how landlords are actually responding in practice. This data provides a clearer answer.

While some landlords are choosing to hold or gradually reduce their portfolios, a notable proportion have reached a different conclusion. Rather than adapting further, they are choosing to step away entirely.

This is not happening loudly, and it is not being driven by panic. It is happening quietly, through individual decisions that, when viewed collectively, begin to form a clear pattern.

Who is leaving, and why it matters

The survey shows that the landlord base is heavily weighted towards older investors, with the majority aged 56 and above. This context matters when interpreting exit intentions.

For many, the decision to leave is not reactive, it is rational. After decades of building portfolios, many landlords are now reassessing whether the current environment justifies continued involvement. Regulatory complexity, shifting tax treatment and changing risk dynamics all play a role, but the underlying driver is often simpler; control. At a certain stage, landlords begin to prioritise certainty and simplicity over further growth.

Not distress, but decision

One of the more revealing aspects of the survey findings is that many of those considering exit are not highly leveraged. A large proportion of respondents report loan-to-value ratios below 50%, with a significant number owning properties outright. This suggests that exits are not being forced by financial pressure, but chosen as part of a wider strategic reassessment. This distinction is important because it points to a sector where experienced landlords are stepping back not because they have to, but because they want to.

Implications for housing supply

If even a portion of these intended exits materialise, the impact on housing supply could be significant. Properties leaving the rental sector do not automatically return as rental stock. In many cases, they are sold to owner-occupiers, reducing the number of homes available to rent. At the same time, as highlighted in the wider survey results, relatively few landlords are planning to expand. The combination of these two forces, increased exits and limited new investment, creates a clear directional pressure.

A turning point, not a temporary phase

This survey represents the first in a planned quarterly series, meaning these findings provide an early indication of sentiment rather than a one-off snapshot. However, the scale of the response and the consistency of the data suggest that this is not a temporary fluctuation. It may instead represent the early stages of a broader transition in how landlords engage with the private rented sector.

For now, one conclusion stands out: a growing proportion of landlords are not adjusting their strategy, they are choosing to leave the market altogether.

A conversation worth having?

If you are weighing up your own strategy, whether that’s to sell, expand, or restructure to improve profitibility, it is worth having a discussion with a Property118 consultant to take a closer look at how your portfolio is structured as a whole now, and to forecast the outcomes based on multiple scenario’s.

These conversations are typically most useful for landlords with established portfolios and relatively modest borrowing who are beginning to reflect on how their assets could work more effectively in the years ahead.

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Tenant starts fight with management?

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Property118

Tenant starts fight with management?

My rental tenant of eight years has got herself into a nasty fight with the managing agent of the development. The dispute concerns the new electronic gates of this gated development, which management says she deliberately damaged and was observed doing so.

Apparently, this happened back in January, but I was only contacted about it by email last night (2 April). They are insisting I pay up (amount unspecified as yet) for the repairs as I am her landlord and so ultimately responsible according to my lease.

I immediately forwarded the email to my tenant and asked her to explain. She replied that she has proof in her “records” that she was not at fault and will supply this to me at a future date. She also denies another vague charge from management that she deliberately “fly tipped” a bed frame on the site (the matter is “under investigation”). She even said she would take legal action against this second accusation if necessary.

I am quite shocked by all this, as my tenant works as a diplomat, and such behaviour seems out of character. She does have a boyfriend who lives with her part of the time. The management company is relatively new and does have a habit of sending out regular complaint emails to owners and tenants about everything from parking to satellite dishes to the electronic gates in question, which now require quite a complex procedure of digital key fobs and codes to gain entry to the site.

This is worrying as I am planning to sell the flat this summer (I have not told my tenant yet) and cannot afford to have an ongoing dispute with management, putting off potential buyers. I also do not want to pay what sounds like an escalating bill for this problem. My tenant gets a high salary and also benefits from diplomatic immunity, so I just want her to pay up for the damage ASAP and not cause me any more problems.

But she seems to want to fight management over this. Any advice from anyone?

Thanks,

Helen

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