Property118 was my Field of Dreams

Property118

Property118 was my Field of Dreams

I built Property118 in the belief that, if I created a place where landlords and good professionals could share knowledge freely, the right people would come. They did. Together, we solved commercial problems that no single profession could solve alone. HMRC spent years fighting what that community created without ever properly understanding it.

When I created Property118, I was not trying to build a tax business, and I certainly was not trying to become involved in years of litigation with HMRC. I wanted to create a place where landlords could share practical experience and where good professionals could contribute their knowledge without every conversation beginning with a fee note. The private rented sector was already becoming more complicated, but the advice available to landlords was fragmented. Accountants understood accounts and tax, solicitors understood legal ownership and conveyancing, mortgage brokers understood lenders, while landlords were left trying to join the pieces together and work out how one professional’s advice affected another’s. Property118 was my Field of Dreams. My belief was simple: build a platform that genuinely helps people and the right landlords and professionals will come. They did, and over time Property118 became a meeting place for people who were willing to look beyond their own narrow specialism and solve real commercial problems together.

That is the part of the story HMRC never understood. They looked at Property118 and saw a promoter. They looked at documents prepared by Cotswold Barristers and saw standardised arrangements. They saw tax consequences and assumed tax avoidance. What they did not see, or refused to see, was the community and the process that sat behind those documents. They did not see the thousands of conversations with landlords about succession, retirement, refinancing, business continuity, early repayment charges, lender restrictions and the practical difficulties of transferring substantial portfolios. They did not understand that the Substantial Incorporation Structure and Capital Account Restructure were not ideas dreamed up in isolation and then sold to unsuspecting clients. They evolved because landlords kept bringing us the same problems and the professionals around Property118 kept applying existing law, HMRC guidance and established professional commentary to find workable answers.

Why did HMRC pursue an argument they could not win?

The more carefully I read the Tribunal judgment, the harder it is to understand how HMRC ever expected its central case to survive contact with the full evidence. HMRC’s position depended upon presenting the Property118 arrangements as tax-driven products whose commercial explanations were little more than decoration. That argument might have looked plausible if the only material considered was a limited selection of marketing pages and transaction documents, but it became unsustainable once the Tribunal heard from the landlords, accountants, solicitors and mortgage professionals who had actually been involved.

The evidence showed that landlords were not incorporating for one simple reason. Some wanted to preserve competitive mortgages that would have been expensive or impossible to replace. Some were approaching retirement and wanted a structure their families could continue after their death. Some wanted to bring children into the business gradually without making them personally liable for partnership debts. Others had cladding problems, early repayment charges, complex portfolios spread across several lenders or refinancing costs that could run into six figures. Tax mattered, of course it did, because no sensible business owner ignores tax, but it was one part of a much wider commercial decision.

The Tribunal found that users of SIS had two main reasons for choosing its particular features. They wanted to obtain full Incorporation Relief and they wanted to avoid refinancing at the point of incorporation for genuine commercial reasons. That finding destroyed the simplistic story HMRC had tried to tell. It also confirmed something even more important for the tax and legal professions: SIS was not merely another route to the same result as a conventional incorporation involving new company borrowing. The Tribunal expressly found that SIS could preserve full Incorporation Relief where refinancing might prevent it from being available in full.

That is not my interpretation of some ambiguous wording buried in the judgment. It is what the Tribunal said. HMRC spent years pursuing Property118 on the basis that the arrangements were a tax avoidance product, yet the judgment accepted the commercial evidence, recognised the refinancing distinction and concluded that the statutory DOTAS tests relied upon by HMRC were not satisfied.

Why did HMRC refuse to recognise what its own manuals and leading professional commentary said?

Property118 did not invent beneficial ownership. We did not invent contractual indemnities, the transfer of a business as a going concern, substitute borrowing or the withdrawal of capital before incorporation. These were established concepts long before SIS and CAR were given names.

Simon’s Taxes warned that where a company raised new finance and passed the money to the transferor so that existing property debts could be repaid, there was a considerable risk that HMRC might refuse to apply Extra-Statutory Concession D32. It recommended an appropriate restructuring of finance before incorporation. Simon’s Taxes also advised that where an unincorporated business had a substantial capital account, the owners should draw it down before incorporation or the value would become locked into the shares issued by the company.

HMRC’s own manuals recognised that business liabilities could be dealt with by the company indemnifying the transferor, and BIM45700 had for years explained how business owners could withdraw capital and profits even where substitute borrowing was then required. Property118 did not create those principles. We joined them together and applied them to the real circumstances of landlords whose capital was locked into property and whose mortgages could not simply be transferred to a company without substantial cost and disruption.

The extraordinary part is that HMRC’s own witness accepted that the concern expressed in Simon’s Taxes was valid and that there had been considerable professional concern about refinancing and ESC D32. He had become aware of that issue through this case rather than through his previous work. The Tribunal also recorded that he had not considered the Office of Tax Simplification report before reaching his conclusions.

This was not a dispute where HMRC had carefully reviewed its own guidance, the recognised professional commentary and the commercial evidence before deciding that Property118 had crossed a line. It was a case in which HMRC formed a view first and only encountered much of the relevant evidence after litigation had already begun.

Why was the decision made without considering the wider evidence?

The Office of Tax Simplification report should have been required reading for anybody trying to decide why landlords incorporate. It recorded that the predominant factors identified by professional bodies and advisers were not purely tax-related. They included limited liability, finance, ring-fencing of debt, control over income withdrawals, succession planning and the ease with which ownership could be passed through shares.

Those findings were entirely consistent with what landlords had been telling Property118 for years. They were also consistent with the evidence eventually heard by the Tribunal. HMRC’s witness had not considered that report when assessing the arrangements.

That is not a minor omission. If HMRC wished to understand the purpose of SIS and CAR, it needed to understand the purpose of the underlying incorporations and the commercial obstacles faced by the people using them. Looking only at the legal steps and the tax consequences was never going to produce a fair picture.

The Tribunal heard evidence that immediate refinancing could have cost individual landlords between £100,000 and £200,000. Some could not refinance because of cladding. Others had dozens of mortgages across several lenders, with different fixed-rate expiry dates, early repayment charges and underwriting requirements. Replacing every mortgage on one day was not a neat administrative exercise. It could damage cashflow, destroy valuable lending terms and make incorporation commercially impossible.

HMRC could have learned all of that without a Tribunal hearing. We repeatedly offered to meet and explain what we were doing, why the arrangements had developed and what problems they were intended to solve. HMRC refused to engage with us in that way. The department chose enforcement over discussion and litigation over understanding.

What were the consequences?

The consequences were not confined to lawyers arguing over legislation in a hearing room. Hundreds of landlord families were placed under a cloud for years. Clients who had acted on professional advice were treated as users of a tax avoidance scheme. Property118 was publicly named by HMRC, Scheme Reference Numbers were imposed and a Stop Notice was issued. Our reputation was damaged before an independent Tribunal had heard the evidence, while landlords and professional advisers were left trying to explain themselves to lenders, accountants, business partners and family members.

Commercial decisions were delayed or abandoned. Landlords postponed refinancing, succession planning, retirement decisions and disposals because nobody knew how HMRC’s action would end. Professionals spent enormous amounts of time responding to enquiries, reviewing documents and defending work they believed was consistent with the legislation and published guidance. Clients lived with the stress of not knowing whether HMRC would pursue them for tax, penalties or interest, even though many had incorporated for long-term commercial reasons and had no intention of selling their properties.

Property118 also paid a heavy price. A business that had been built around education, collaboration and practical problem-solving became associated publicly with tax avoidance because HMRC chose to publish its allegations before those allegations had been tested. The cost was not only financial. It affected the team, our professional relationships and the confidence of people who had trusted us.

The public purse paid too. HMRC committed years of staff time and legal resources to a case it ultimately lost. The Tribunal cancelled the Scheme Reference Numbers because the statutory tests relied upon by HMRC had not been met. All of this occurred after we had offered to meet and explain the arrangements.

Listening would have cost almost nothing. Litigation cost everybody.

Why did HMRC refuse to meet with us?

This is the question I still cannot answer.

We were not asking HMRC for special treatment or advance approval. We were offering to explain how the structures worked, what guidance had been relied upon and why landlords were choosing them. Property118 sat in a unique position because we had direct access to landlords, tax advisers, solicitors, mortgage brokers and lenders. We could show HMRC the complete picture rather than one professional’s isolated part of it.

A meeting would not necessarily have produced agreement, but it would have exposed the assumptions on both sides. HMRC could have asked difficult questions. We could have shown the department the commercial evidence, the OTS findings, the Simon’s Taxes warnings and the interaction between tax, beneficial ownership and mortgage finance. Any genuine weaknesses could have been identified and addressed before hundreds of clients were caught in the middle.

Instead, HMRC refused to meet and later relied upon a witness who had not considered the OTS report, had no direct experience of advising landlords contemplating incorporation and had examined only a limited range of material. The Tribunal described him as not an impressive witness.

That outcome was avoidable.

Property118 was my Field of Dreams

Looking back, Property118 became far more than the website I originally imagined. It became a place where people who would not normally sit around the same table could share what they knew. Landlords explained the real problems. Accountants explained the tax and accounting consequences. Solicitors and barristers dealt with ownership and documentation. Mortgage professionals explained what lenders would and would not do. The solutions developed because the right people came together.

That was my Field of Dreams. I built the platform and the people came.

HMRC mistook that collaboration for something sinister. It treated joined-up professional problem-solving as the promotion of tax avoidance because the department looked at the tax outcome without properly understanding the commercial problem that had produced it.

The Tribunal heard the wider evidence and reached a different conclusion. It recognised that incorporation involves multiple commercial and tax considerations, accepted that avoiding immediate refinancing served genuine non-tax purposes and found that SIS could preserve full Incorporation Relief where refinancing might not. It rejected HMRC’s attempt to force the arrangements into the DOTAS descriptions and cancelled the Scheme Reference Numbers.

I take no pleasure in the amount of time, money and stress that was required to reach that point. I do take enormous pride in the landlords and professionals who were prepared to give evidence and explain what had really happened. They proved that Property118 was not a factory producing tax schemes. It was a community solving commercial problems.

HMRC spent years fighting something it never understood. My hope is that the department now learns the most obvious lesson from this case.

Before assuming the worst, ask questions. Before damaging reputations, examine the wider evidence. Before spending years litigating against people who have repeatedly offered to explain themselves, sit down and listen.

It is nearly always cheaper than going to court.

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Professional advisers and PI insurers cannot afford to ignore HMRC’s tax rewrite

Property118

Professional advisers and PI insurers cannot afford to ignore HMRC’s tax rewrite

HMRC has replaced long-standing guidance that accountants and tax advisers may have relied upon when advising landlords about refinancing and withdrawing capital. If HMRC now applies its revised interpretation to historic transactions, landlords could face unexpected tax demands, advisers could face negligence allegations and the professional indemnity market may be left funding the resulting disputes.

For years, HMRC’s Business Income Manual contained a detailed worked example showing how a landlord could refinance a rental property, withdraw part of the capital previously invested in the business and use that money privately without automatically losing relief for the interest on the replacement borrowing. The example was numerical, easy to follow and sufficiently important to be reproduced by the government’s former Office of Tax Simplification in its official review of residential property income. It was therefore not unreasonable for accountants and tax advisers to regard it as a meaningful statement of HMRC’s interpretation when advising clients whose property businesses had been financed with a mixture of personal capital, reinvested profits and external borrowing.

HMRC has now removed that example and replaced it with another involving a strikingly similar transaction, but this time the answer is reversed. A landlord again refinances a London rental property and uses the money released to buy a private home, yet HMRC now says the interest is not allowable. The calculations that previously showed whether the proprietor was withdrawing capital genuinely standing to their credit have disappeared, with HMRC describing them as “unnecessary numerical calculations”. If this new approach is applied to refinancing completed while the former guidance was still published, the consequences will not stop with the landlords concerned. Accountants and tax advisers may have to defend advice that was properly grounded in HMRC’s own worked example, while their professional indemnity insurers may be asked to fund the cost of investigating and resisting claims that would never have arisen had HMRC explained clearly what changed and when.

The guidance advisers were entitled to take seriously

In the previous version of BIM45700 preserved by the Wayback Machine, HMRC gave the example of Mr A, who owned a flat in central London worth £375,000 subject to a mortgage of £80,000. When the property was introduced into his rental business, the remaining £295,000 represented capital introduced by him. Mr A later increased the mortgage by £125,000 and withdrew that money to buy a private home in Rotterdam. His total borrowing then stood at £205,000, while his capital account remained £170,000 in credit. HMRC’s conclusion was unequivocal: “The interest on the mortgage loan is allowable in full.” The figures mattered because they demonstrated that Mr A had not borrowed beyond the value represented by the business asset or withdrawn more than the capital standing to his credit. An external lender had simply replaced part of the finance that Mr A had previously supplied himself.

The private use of the money withdrawn did not, in HMRC’s published analysis, convert the mortgage into private borrowing because the commercial purpose and effect of the refinancing had to be considered in the context of the continuing rental business and the proprietor’s capital account. This was not an interpretation devised by a promoter seeking to exploit an obscure ambiguity. The former Office of Tax Simplification reproduced the example in its official 2022 Property Income Review, describing it as long-standing HMRC guidance and explaining that HMRC appeared to accept interest relief where borrowing enabled a proprietor to withdraw capital without creating an overdrawn capital account. Professional advice should never rest solely on an HMRC manual because guidance is not legislation, but where HMRC publishes a detailed numerical example for years and that interpretation is then repeated in an official government report, advisers are plainly entitled to treat it as highly relevant evidence of HMRC’s view.

The near-identical example that now produces the opposite answer

HMRC’s Business Income Manual update record confirms that BIM45700 was amended on 1 July 2026. The current version of BIM45700 now contains an example involving Mrs H, who owns a London house let to students, moves to Paris for work, increases the mortgage secured against the rental property and uses the additional money to buy her new private residence. HMRC’s conclusion is that “the interest on the new remortgage is not an allowable deduction” because the additional borrowing funded a private asset. The resemblance to the former Rotterdam example is obvious, but the new version gives no figures for the value of the London property, the original mortgage, the capital introduced by Mrs H, the amount remaining to her credit or whether the refinancing exceeded the capital represented within the business.

Those omissions make it impossible to determine whether Mrs H was borrowing additional money for a private purchase or merely recovering part of the capital she had already invested in the continuing rental business. HMRC says the July amendments were intended to provide clearer context and remove “unnecessary numerical calculations”, yet the missing calculations were the very mechanism by which taxpayers and advisers could distinguish between replacing business capital and financing additional private expenditure. The present manual still acknowledges that proprietors may withdraw profits and capital even where interest-bearing replacement finance is required, and its third example says officers should consider both the proprietor’s purpose in obtaining the finance and the amounts that could have been withdrawn without the borrowing. That appears to recognise that the capital available for withdrawal remains relevant, while the new Paris example denies relief without disclosing any of the information needed to apply that analysis.

The law is more nuanced than simply following the cash

The statutory starting point is the wholly and exclusively test in section 34 of the Income Tax (Trading and Other Income) Act 2005. HMRC’s own continuing guidance at BIM45665, referring to Scorer v Olin Energy Systems Ltd, recognises that the purpose of borrowing cannot necessarily be determined solely by tracing where the money went on the day it was received. Purpose is a question of fact to be assessed from all the available evidence, which is particularly important where the proprietor has already used personal money or retained profits to finance a continuing business asset and subsequently replaces part of that finance with commercial borrowing.

Suppose a landlord purchases and improves a rental property using £300,000 of mortgage borrowing and £200,000 of personal savings. Several years later, the landlord increases the mortgage from £300,000 to £400,000 and withdraws £100,000, leaving another £100,000 of the original personal capital invested in the business. The property remains in the rental business, the landlord has not withdrawn more than was previously introduced and a commercial lender has simply replaced part of the finance the landlord supplied at the outset. The landlord might use the returned capital to repay personal borrowing, provide for retirement, assist a family member or take a very expensive holiday, but those later choices do not necessarily answer the commercial question of what the mortgage is financing. The former BIM45700 treated the capital account and the continuing business asset as central to that analysis, whereas the replacement example appears capable of treating the destination of the withdrawn money as decisive without showing whether the proprietor was merely recovering capital genuinely standing to their credit.

The same issue extends beyond original seed capital. A landlord may pay tax on rental profits and then leave those profits within the business to reduce mortgages, fund improvements, acquire further properties or provide working capital. Those profits do not cease to belong economically to the landlord merely because they were retained rather than immediately withdrawn. Years later, refinancing may be necessary to restore access to that money for retirement, succession planning, family support, personal debt reduction or incorporation. If HMRC’s revised position means that relief depends primarily upon how the returned money is subsequently spent, personally supplied capital and already-taxed profits could effectively become trapped inside the business as the price of preserving interest relief. That would be a significant commercial restriction and deserves a clear legal explanation, not the unexplained substitution of Rotterdam with Paris.

When a landlord’s tax enquiry becomes an adviser’s PI notification

Consider an accountant advising a landlord in September 2023. The landlord has invested £500,000 of personal capital and retained profits within a property business and wants to refinance £200,000 of that investment. The accountant reviews the balance sheet and capital account, considers the legislation, reads HMRC’s worked Rotterdam example and records that the client’s capital account will remain substantially in credit after the withdrawal. The refinancing is completed, the money is spent and the transaction cannot later be unwound without potentially significant cost. If HMRC subsequently opens an enquiry, applies the replacement guidance and seeks additional tax and interest, the landlord may ask why the accountant did not warn that HMRC could regard the borrowing as private. The accountant may have a compelling answer because the advice was based upon the law, the client’s records, HMRC’s own numerical example and the interpretation reproduced by the OTS, but a credible defence does not prevent a complaint or claim from being made.

Once a claim is alleged, the dispute may require a detailed review of the adviser’s retainer, the precise advice given, the version of HMRC’s manual available at the time, the treatment of the capital account, the client’s understanding, whether any additional warning ought reasonably to have been given, whether the client would have acted differently and what loss was actually caused. Even a weak professional negligence allegation can generate substantial investigation and defence costs, particularly where similar claims arise across different firms and each insurer appoints its own legal team to examine the same unresolved question. The professional indemnity exposure is therefore not based on an assertion that advisers who relied on the former guidance were negligent. It arises because HMRC’s unexplained rewrite may create the conditions in which landlords allege that they were.

Why today’s insurer may inherit yesterday’s advice

Professional indemnity insurance is commonly written on a claims-made basis, so subject to the policy wording and any retroactive date, a policy in force when the claim is made may respond to professional work completed years earlier. Hiscox explains the distinction and confirms that a valid claim made during a current policy period can relate to work performed in an earlier year. Advice given while the former BIM45700 remained published may therefore produce a notification under a policy written by a different insurer several years later, which makes this relevant not only to claims teams but also to underwriting, renewal questionnaires, reserving and the pricing of tax advisory risks.

The potentially insured professional population is substantial. ICAEW requires practising members in public practice to maintain professional indemnity insurance, while the Association of Taxation Technicians imposes a similar requirement on self-employed members and identifies the TaxPro arrangement provided by Hiscox through Gallagher. Marsh Commercial describes itself as ICAEW’s exclusive appointed insurance broker and says it manages more than 4,300 policies for ICAEW members, while Hiscox’s own accountants’ cover expressly contemplates claims arising from tax-related professional errors and the costs of defending them. None of this proves that a wave of claims will follow, but it does explain why the PI market should examine the issue before HMRC’s treatment of historic refinancing becomes embedded in enquiries and appeals.

HMRC was asked to explain and chose not to

Property118 published an open letter asking what had changed in the law behind BIM45690 and BIM45700. We asked why the replacement Paris example appeared to produce the opposite answer from the former Rotterdam example, whether capital account balances remained relevant, what legislation or judicial authority supported the revised position and how HMRC intended to treat historic refinancing completed in reliance upon its former published guidance. We also asked whether the amendments represented a new interpretation for future borrowing, a correction HMRC intended to apply to open tax periods, or merely a clarification that should not alter the outcome where borrowing genuinely replaces capital standing to the proprietor’s credit.

We subsequently published a second open letter asking HMRC to clarify its 20-hour guidance for landlord incorporation relief. That letter concerned HMRC’s statement at CG65715 that incorporation relief should be accepted where an individual personally spends 20 hours or more each week undertaking activities indicative of a business, even though section 162 of the Taxation of Chargeable Gains Act 1992 contains no statutory hours threshold and the figure arose from the facts of Ramsay v HMRC. HMRC acknowledged both letters and confirmed that they had been shared with the relevant colleagues, but its substantive response was that it does not generally provide individual answers to feedback concerning policy or guidance. It did not identify the teams considering the issues, confirm that any technical review was under way, provide a timetable or answer a single substantive question.

Why Property118 is prepared to organise a challenge

Property118 does not approach collective litigation as a publicity exercise. In Alexander v West Bromwich Mortgage Company Ltd [2016] EWCA Civ 496, the Property118 Action Group organised a crowdfunded representative challenge after a buy-to-let lender sought to increase the margin on tracker mortgages and rely upon inconsistent standard conditions. The claim was unsuccessful at first instance, but Property118 and the borrowers continued to the Court of Appeal, where the appeal was allowed. An account published in Counsel magazine described the matter as the largest direct-access case of its time and explained the novel use of crowdfunding and the Bar Council’s escrow arrangements.

More recently, Property118 spent years preparing, organising and funding a ten-day First-tier Tribunal hearing against HMRC concerning the application of the Disclosure of Tax Avoidance Schemes legislation to its landlord incorporation model. That case required extensive documentary evidence, specialist representation, professional witnesses and sustained communication with hundreds of affected clients. Previous experience does not establish that any new challenge is legally arguable or guarantee that it would succeed, but it does show that Property118 understands the responsibility involved in asking others to support collective litigation and has the persistence to continue when the evidence and independent legal advice justify doing so. Our integrity should be judged by whether we publish the underlying material, explain the risks candidly and submit our own interpretation to specialist independent scrutiny rather than simply insisting that HMRC must be wrong.

We are considering a judicial review, not announcing one

HMRC’s manuals are not legislation, and HMRC is entitled to revise guidance where it concludes that the published material no longer reflects the law. The question is whether the replacement guidance is itself a correct and lawful explanation of the legal position, whether HMRC acted fairly when replacing a long-standing worked example and what protection may be available to taxpayers who relied upon the former published position. A judicial review would not ask the High Court to invent a concession for landlords or determine every taxpayer’s individual liability. It would ask the court to examine the lawfulness of HMRC’s decision, action or failure to act in the exercise of its public functions.

Property118 is therefore considering whether to raise funds to instruct specialist tax and public-law barristers at Devereux Chambers, whose members have substantial experience of tax-related judicial review involving HMRC guidance, practices and discretions. No fundraising campaign has yet been launched and no representation is being made that proceedings will necessarily be issued. The first task would be to establish whether specialist counsel considers there to be a properly arguable claim, who the appropriate claimant would be, when the relevant limitation period began, what evidence would be required and what remedy the court could realistically grant. That advice would need to be obtained quickly because Part 54 of the Civil Procedure Rules requires judicial review claims to be filed promptly and, ordinarily, within three months after the grounds first arose.

What it may cost to force an answer from HMRC

If a fundraising campaign is launched, it would proceed in stages so that supporters understand from the outset that the first target would fund the investigation and pre-action work rather than an entire High Court case and any subsequent appeal. The figures are provisional campaign milestones, not fixed quotations, and would have to be refined once specialist counsel had considered the case, the identity of the claimant, the evidence, HMRC’s response and the availability of costs protection.

Stage one: approximately £30,000

The first milestone would fund the initial legal and evidential investigation, analysis of the former and replacement manuals, consideration of the legislation and authorities, preservation and review of the available evidence, identification of an appropriate claimant, advice on standing and limitation, and preparation of a detailed pre-action case to HMRC. Reaching this stage would not guarantee that proceedings would be issued, but it would allow the issue to be examined properly and HMRC to be confronted with a legally structured challenge rather than another request for an explanation.

Stage two: approximately £150,000 in total

If counsel advised that proceedings should be issued and HMRC did not resolve the matter through the pre-action process, the next cumulative milestone would support preparation and issue of the judicial review claim, any required solicitors or authorised litigators, court fees, detailed grounds, claimant and supporting evidence, consideration of HMRC’s defence and preparation for the permission stage. Permission is required before a judicial review can proceed to a substantive hearing, and considerable work may be necessary before the court decides whether the full case should be heard.

Stage three: approximately £500,000 in total

If permission were granted, a cumulative fighting fund of approximately £500,000 might be required to prepare and conduct a substantive High Court hearing. That stage could involve further witness and documentary evidence, specialist accounting input, court bundles, written submissions, conferences, representation at the hearing, solicitors’ costs and appropriate insurance or other protection against an adverse costs order. The amount could be lower or higher depending on the breadth of the grounds permitted to proceed and the way HMRC chose to defend them.

Stage four: up to £1 million in total

An ultimate fighting fund of up to £1 million could provide resilience if either party sought to appeal and, once the BIM45700 issue and any appeal were adequately funded, could allow consideration of a related challenge to HMRC’s 20-hour incorporation guidance. The purpose of identifying the ultimate figure is not to suggest that one court hearing should cost £1 million, but to manage expectations honestly and recognise that a serious public-law challenge may involve several stages, unexpected developments and exposure to the other side’s costs.

Why we are publishing this before asking for money

Launching a fundraising page immediately would be straightforward, but establishing whether the professional community understands the risk and shares our concern is more important. We want accountants and tax advisers to examine the archived guidance and consider whether they or their firms relied upon it. We want PI brokers and insurers to assess whether historic advice could generate future notifications under claims-made policies. We want ICAEW, CIOT, ATT and other professional bodies to consider whether their members need authoritative clarification of the treatment of capital withdrawals, while lenders, mortgage brokers and landlord organisations should consider the consequences for businesses financed partly by proprietors’ personal capital and reinvested profits.

Most importantly, we want HMRC to recognise that declining to explain the rewrite does not make the uncertainty disappear; it transfers the cost and risk to taxpayers, advisers, insurers and potentially the courts. Landlords who refinanced in reliance upon professional advice should forward this article to their accountant or tax adviser and ask whether the former BIM45700 formed part of the analysis. Advisers who referred to the old guidance should preserve the version used, the advice provided, the capital account calculations and the relevant client correspondence, while PI insurers and brokers should consider whether the issue is capable of creating a notifiable circumstance across an insured book of tax and accountancy practices. Whether any notification is actually required will depend entirely upon the facts and the individual policy wording, but the common risk should not be ignored until the first claims arrive.

Property118 would welcome private or publishable responses from professional advisers, accountancy and tax bodies, PI brokers, claims directors and underwriters. We would also like to receive anonymised evidence of refinancing undertaken in reliance upon the former manual, including written advice, mortgage applications, balance sheets, capital account calculations and correspondence referring to BIM45700. Please email mark@property118.com using the subject line HMRC guidance and professional indemnity risk.

No assumption should be made that HMRC is legally wrong simply because its published answer has changed. It is, however, entirely reasonable to ask why two remarkably similar refinancing examples now appear to produce opposite results, what changed in the law and who will meet the cost if professional advice given under the former guidance is subsequently challenged. Professional advisers and their insurers should not have to wait for negligence claims to arrive before asking those questions.

Evidence and source documents

HMRC BIM45700 before the rewrite, archived after the September 2023 update

The current BIM45700 and its replacement Paris example

HMRC’s Business Income Manual update record

The official Office of Tax Simplification Property Income Review

HMRC BIM45665 and the principle taken from Scorer v Olin Energy Systems Ltd

Property118’s open letter concerning BIM45690 and BIM45700

Property118’s open letter concerning the 20-hour incorporation guidance and HMRC’s response

HMRC’s current CG65715 incorporation guidance

The Court of Appeal judgment in Alexander v West Bromwich Mortgage Company Ltd

Counsel magazine’s account of the Property118 Action Group case

Devereux Chambers’ tax judicial review expertise

Part 54 of the Civil Procedure Rules

ICAEW professional indemnity insurance requirements

ATT professional indemnity insurance requirements and approved arrangements

Marsh Commercial’s ICAEW professional indemnity scheme

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Did tax advisers, lawyers and lenders get landlord incorporation wrong?

Property118

Did tax advisers, lawyers and lenders get landlord incorporation wrong?

The First-tier Tribunal has confirmed that refinancing at the point of incorporation can jeopardise full Incorporation Relief, while the Property118 Substantial Incorporation Structure avoids that risk. The warning was already contained in leading professional tax commentary, yet it was never absorbed into mainstream tax, legal and mortgage practice.

Property118 did not simply win its DOTAS appeal against HMRC. The Tribunal judgment has exposed a technical failure at the heart of what many highly qualified tax professionals, lawyers and the mortgage sector have treated as the conventional way to incorporate a mortgaged property business.

For years, advisers have commonly proceeded on the basis that the properties should be transferred into a company and the existing personal mortgages replaced with new company borrowing at completion. That process has been presented as the normal, orthodox or safest form of incorporation.

The Tribunal has now confirmed that it is not tax-equivalent to the structure recommended by Property118, which we labelled the Substantial Incorporation Structure, or SIS.

At paragraphs 150 and 151 of the published judgment, the Tribunal selected incorporation involving the transfer of legal and beneficial ownership, with the existing debt dealt with through novation, refinancing or another arrangement, as the appropriate comparison.

It then found that SIS:

“enables a person to obtain a tax advantage in that it enables him to obtain IR in full”

The judgment explains that full Incorporation Relief might not be obtained where refinancing takes place. It also confirms that the other tax consequences identified by HMRC were simply the ordinary consequences of incorporating a property business and were not additional advantages created by SIS. Most importantly, the Tribunal rejected HMRC’s case that obtaining the Incorporation Relief advantage was the main purpose of SIS.

The conclusion is unavoidable. Immediate company refinancing and SIS do not necessarily produce the same tax result. SIS can preserve full Incorporation Relief where conventional refinancing at completion can put it at risk.

That is not Property118’s interpretation of what the Tribunal might have meant. It is the Tribunal’s express finding.

The warning was already there

The risk created by refinancing was not invented by Property118, nor was it constructed retrospectively to defend the Tribunal proceedings.

It was already contained in Simon’s Taxes, one of the principal professional reference works used by accountants, tax advisers, solicitors and barristers.

Simon’s Taxes B9.114 warned that where a company raises its own finance and passes the proceeds to the transferor to repay the existing debts connected with the properties, there is a considerable risk that HMRC will decline to apply Extra-Statutory Concession D32.

It recommended that the finance should be appropriately restructured before incorporation.

The warning is reproduced and discussed at paragraphs 56 to 58 of the Tribunal judgment.

That warning goes directly to the distinction at the centre of the Tribunal’s finding. An existing business liability taken over by the company is not necessarily the same thing as a new company loan used to provide money to the former owners so that they can repay their personal mortgages.

Under section 162 of the Taxation of Chargeable Gains Act 1992, Incorporation Relief is available where a qualifying business is transferred to a company as a going concern, together with its assets, wholly or partly in consideration for shares.

Where the transferor receives consideration other than shares, the amount of relief can be restricted.

HMRC’s Capital Gains Manual at CG65745 explains that business liabilities taken over by the company are commonly dealt with by the company giving the transferor an indemnity. Extra-Statutory Concession D32 allows qualifying business liabilities taken over by the company to be ignored when calculating consideration other than shares.

The professional mistake was to assume that the concession necessarily produced the same result where the company did not assume the existing liability but instead raised entirely new finance and used it to put the transferor in funds to repay that liability.

Simon’s Taxes warned that this assumption was unsafe. The Tribunal has now confirmed why it matters.

Property118 solved a problem the mainstream market had failed to recognise

SIS was developed to allow the beneficial ownership of the property business to be transferred to the company while the existing mortgage liabilities and registered legal titles remained in the names of the former owners until refinancing became commercially appropriate.

The company indemnified the former owners against the business liabilities. The existing mortgage arrangements were preserved, legal title did not have to be transferred immediately and the company did not have to raise new money to repay the personal mortgages on the incorporation date.

That solved several problems simultaneously.

It avoided early repayment charges, new lender arrangement fees, fresh valuations and the legal costs of refinancing every property at once. It protected favourable existing mortgage rates, prevented a landlord from being forced into whatever company finance happened to be available on one particular day and allowed legal and beneficial ownership to be reunited later when refinancing made commercial sense.

It also dealt with the technical concern identified in Simon’s Taxes by avoiding the replacement financing transaction that could jeopardise full Incorporation Relief.

Property118 had always explained that SIS was built from established legal principles, HMRC guidance and recognised professional commentary. The Tribunal recorded that the names SIS and CAR were descriptive labels applied to professional practices and sequencing already reflected in Simon’s Taxes and HMRC’s manuals.

Property118 did not manufacture an artificial tax product. It joined together tax, legal, accounting and mortgage principles that the separate professions had failed to coordinate.

The evidence shows that the warning was overlooked

There is no need to speculate about whether the refinancing issue was understood across the professional market. The evidence recorded in the judgment provides the answer.

HMRC’s own witness accepted that the concern raised by Simon’s Taxes was valid. He also accepted that there had been considerable professional concern about whether ESC D32 applied where refinancing took place.

More remarkably, he had become aware of the issue and HMRC’s proposed clarification through this case rather than through his previous work. He had not considered the Office of Tax Simplification report when deciding that the Property118 arrangements should be issued with Scheme Reference Numbers.

The Tribunal recorded that he had no direct experience of advising landlords considering incorporation, had concentrated on a limited range of documents and website materials and had failed to examine the real-world commercial reasons landlords incorporated. The judgment described him as “not an impressive witness”.

The evidence from professional advisers was also revealing. Some understood that refinancing at incorporation could jeopardise full Incorporation Relief. Others who had been involved in advising incorporated property businesses were unfamiliar with the issue.

The judgment records that Mr Alan Pateman FCA (Managing Partner at Seagrave and Co chartered accountants) understood both the refinancing risk and the protection provided by SIS. By contrast, Mr Jones (Commercial Finance Broker), Mr Rose (Solicitor) and Mr Revell (Tax Adviser) were not familiar with the point that refinancing could threaten full Incorporation Relief.

This was not an obscure disagreement between two competing tax theories. The warning existed in one of the profession’s leading reference works, yet it had not become a standard part of mainstream landlord incorporation advice.

The tax profession had not absorbed it. The legal profession had not built it consistently into conveyancing and incorporation work. The mortgage sector continued to treat immediate company refinancing as the conventional route.

Property118 identified the disconnect and built a coordinated solution around it.

A failure created by professional silos

The most obvious explanation is that each profession looked only at its own part of the transaction.

Accountants and tax advisers considered whether the activities amounted to a business and whether the basic conditions of section 162 were met. Conveyancing solicitors concentrated on transferring registered title, redeeming the existing mortgage and satisfying the requirements of the incoming lender. The mortgage broker concentrated on affordability, valuation, loan-to-value ratios and the availability of limited company products. The lender concentrated on its security and underwriting policy.

Every adviser could therefore complete their own part of the transaction while nobody examined the tax consequences created by the interaction between them.

A solicitor who assumed that the registered titles had to be transferred immediately would require the existing mortgages to be redeemed. A broker would then arrange new company borrowing because that was the transaction the solicitor and client had requested. The accountants and tax advisers might have assumed that ESC D32 protected all borrowing associated with the properties without distinguishing between the original business liabilities and the company’s new finance.

The transaction would be described as a conventional incorporation even though its financing mechanics could place full Incorporation Relief at risk.

SIS broke through those professional silos. It treated tax, ownership, mortgage security, business liabilities and the client’s commercial objectives as one connected transaction.

That is why the structure produced a different result.

The mortgage sector cannot dismiss this as somebody else’s tax problem

Mortgage lenders and brokers are not responsible for deciding whether a landlord qualifies for section 162 Incorporation Relief. The financing transaction they arrange can nevertheless determine whether full relief is available.

There is a fundamental difference between a company indemnifying the former owners against the existing liabilities of the transferred business and the company borrowing new money which is then paid to the former owners to enable them to repay their personal mortgages.

That difference affects the nature of the consideration provided on incorporation. It therefore affects the tax analysis.

Mortgage advisers who told landlords that all existing loans had to be replaced on the day of incorporation should now ask whether they understood the warning in Simon’s Taxes B9.114. Lenders should ask whether novations, transfers of borrower, declarations of trust or deferred refinancing could have been accommodated instead of insisting upon a complete refinancing exercise.

The judgment also exposes a significant product-development opportunity. Lenders that develop properly underwritten routes for transferring, novating or subsequently refinancing existing property business borrowing can serve professional landlords who wish to incorporate without sacrificing favourable mortgage terms or putting full Incorporation Relief at risk.

This is not simply a tax issue; it is a financing issue with tax consequences.

The commercial reasons were real

HMRC attempted to present SIS and CAR through the narrow lens of tax avoidance. The Tribunal looked at the evidence and rejected that approach.

The independent Office of Tax Simplification Property Income Review found that the predominant reasons identified by professional bodies and advisers for landlord incorporation were not purely tax-related.

They included limited liability, access to finance, ring-fencing of debt, control over the timing of income withdrawals, succession planning and the ability to transfer ownership through shares.

The Tribunal found that the evidence given by Property118, the professional witnesses and the landlord clients reflected the findings of that independent government report. It recognised that incorporation is a major, long-term commercial decision and that the importance of tax and non-tax factors differs from one client to another.

The evidence about refinancing was compelling.

Advisers explained that clients wanted to retain favourable mortgage rates, avoid early repayment charges, delay legal and valuation costs and refinance when the market offered suitable terms.

One client owned 33 properties and faced estimated immediate refinancing costs of between £150,000 and £200,000, excluding the effect of any increase in mortgage rates. Another had £9.3 million of mortgages spread across several lenders.

Other clients could not refinance because of cladding problems. Some had dozens of separate mortgages. One landlord estimated that immediate refinancing would have cost more than £100,000 and required over 100 hours of administrative work.

The Tribunal found that users of SIS had two main reasons for using its particular features: obtaining full Incorporation Relief and avoiding immediate refinancing for genuine non-tax reasons.

That is precisely what Property118 had said throughout.

The clients led the decisions. They came to Property118 with existing businesses, mortgage commitments, succession objectives, retirement plans and real commercial constraints. Property118 coordinated the professional advice required to determine whether incorporation supported those objectives and how it could be implemented without destroying value in the process.

Simon’s Taxes contained a second warning

The refinancing warning in B9.114 was not the only relevant statement in Simon’s Taxes.

B9.112 advises that where an unincorporated business has a substantial positive capital account, the owners should draw it down before incorporation. If they do not, the value becomes locked into the shares issued by the company.

This matters because the capital account represents value already belonging to the owners of the unincorporated business. It can include original capital introduced, accumulated profits on which Income Tax has already been paid and other properly recognised amounts standing to the owners’ credit.

That balance cannot simply be converted into a tax-free director’s loan account on incorporation without affecting the consideration given for the transferred business. If the company owes the former owners that amount as part of the transaction, it may represent non-share consideration and restrict Incorporation Relief.

Where the capital is tied up in properties rather than held as cash, drawing it down before incorporation requires substitute funding.

That is the commercial and technical problem addressed by the Property118 Capital Account Restructure, or CAR.

The owners obtained temporary borrowing before incorporation and used it to release capital standing to their credit. They then lent corresponding funds to the new company, leaving the company owing genuine director’s loans to them after incorporation.

The Tribunal found that leading professional commentary supported the release of capital before incorporation. It also found that there was nothing unusual or contrived about obtaining short-term third-party finance and using the funds to finance the company through director’s loans for the purpose of preserving access to capital previously provided to the business.

Again, Property118 did not invent the underlying tax and accounting principles. It developed a practical means of implementing what the professional commentary said business owners should do.

HMRC rewrote BIM45700 while the judgment was reserved

The controversy does not end with the warnings in Simon’s Taxes.

The Tribunal hearing took place between 2nd and 13th February 2026. While the judgment remained reserved, HMRC rewrote BIM45700 on 1 July 2026. The judgment was released on 31 July 2026.

The timing does not establish HMRC’s motive, but the sequence of events is a matter of record. The guidance relied upon by Property118, reproduced by the Office of Tax Simplification and examined during the Tribunal proceedings was materially rewritten before the judgment was published.

HMRC’s official update record describes the change as providing clearer context and removing unnecessary numerical calculations.

That description understates what happened.

Before 1 July 2026, BIM45700 expressly recognised that a proprietor could withdraw business profits and capital introduced into the business even where substitute finance then had to be provided through interest-bearing borrowing.

The former guidance stated:

“The interest payable on the loans is an allowable deduction.”

It explained that the additional borrowing could be regarded as providing working capital for the business, subject to a restriction where the proprietor’s capital account became overdrawn.

This wording had stood for more than a decade. A tax discussion published in January 2014 quoted it directly from HMRC’s BIM45700, and the same wording is preserved in Wayback Machine snapshots from May 2017, September 2023 and February 2026.

The former numerical examples were not unnecessary. They were the means by which taxpayers and advisers could determine whether the proprietor was withdrawing genuine capital standing to their credit or borrowing beyond that amount to finance additional private expenditure.

From Rotterdam to Paris, with the answer reversed

The clearest evidence of the change is the contrast between HMRC’s former and replacement examples.

The former BIM45700 concerned Mr A, who owned a London flat originally bought for £125,000 with an £80,000 mortgage. When the property entered his rental business, it was worth £375,000, creating an opening capital account of £295,000.

Mr A increased the mortgage by £125,000 and used the money to buy a flat in Rotterdam. The borrowing remained below the value introduced into the rental business and his capital account was not overdrawn.

HMRC’s former guidance allowed the interest in full.

The Office of Tax Simplification reproduced that example in 2022 and stated that it demonstrated HMRC’s acceptance that interest on a loan raised to permit the withdrawal of capital could qualify for relief, provided the owner’s capital account did not become overdrawn.

The rewritten BIM45700 now contains an example involving Mrs H. She owns a London rental property, moves to Paris and increases the mortgage to buy her new private residence there.

HMRC now says that the interest on the additional borrowing is not allowable because the money was used to acquire a private asset.

The factual resemblance between the old Rotterdam example and the new Paris example is impossible to miss. In both cases, a proprietor increases the mortgage on a London rental property and uses the money to buy a private home overseas.

The answer has been reversed.

HMRC achieved that reversal by stripping out the figures which showed whether the proprietor had capital available to withdraw. The new example does not state the value of Mrs H’s property when it entered the business, her existing mortgage, her capital account or whether that account became overdrawn.

Those were not unnecessary calculations. They were the facts that determined the result under HMRC’s previous guidance.

Under the former BIM45700, the central question was whether the borrowing replaced capital genuinely standing to the owner’s credit without creating an overdrawn capital account. Under the rewritten version, HMRC treats the owner’s subsequent private use of the money as decisive in the Mrs H example.

Those are different approaches.

HMRC has not identified what changed in the law

The statutory wholly and exclusively test remains contained in section 34 of the Income Tax (Trading and Other Income) Act 2005.

HMRC’s update record does not identify any amendment to section 34 or any new binding judicial decision that required its longstanding guidance to be reversed.

HMRC manuals do not create or amend the law. They record HMRC’s interpretation of it.

The current BIM45700 still acknowledges that a proprietor may withdraw profits and capital even where the business subsequently requires interest-bearing borrowing. It then adds that simply exchanging capital for loan finance does not by itself satisfy the wholly and exclusively test and says that interest is allowable where the borrowing is used for business expenditure or business assets.

That wording shifts the analysis away from what the borrowing replaces within the business and towards what the proprietor does with the money released.

The implications extend far beyond somebody remortgaging a rental property to buy a holiday home. A positive capital account may include years of retained profits on which the landlord has already paid Income Tax. Those profits may have been left in the business to repay debt, fund improvements, support working capital or acquire further properties.

If HMRC now treats replacement borrowing as private because the owner later uses the returned money for retirement, succession planning, family support or another personal purpose, it can penalise the prudent proprietor who left taxed profits in the business instead of withdrawing them immediately.

The problem becomes more serious at incorporation because Simon’s Taxes tells the owner to draw down that capital before the business is transferred. If the owner follows that advice, HMRC’s rewritten BIM45700 can now be used to challenge the interest on the replacement finance. If the owner does not follow it, the capital can become locked into the shares and require dividends, a share sale, a capital reduction or liquidation before it can be accessed.

Property118 examined this problem in HMRC’s quiet rewrite could trap profits landlords have already paid tax on and formally asked HMRC to identify the legal basis for the change in its Open Letter concerning BIM45690 and BIM45700.

The question remains unanswered.

The rewrite cannot change the history

HMRC’s July 2026 rewrite cannot alter what BIM45700 said when SIS and CAR were developed, advised upon and implemented.

It cannot alter the fact that Simon’s Taxes advised owners to release substantial capital accounts before incorporation.

It cannot alter the fact that HMRC’s former guidance expressly contemplated substitute borrowing following the withdrawal of capital.

It cannot alter the Office of Tax Simplification’s published understanding that interest could qualify where borrowing enabled the withdrawal of capital without creating an overdrawn capital account.

It cannot alter the Tribunal’s finding that leading professional commentary treated the release of capital as normal, nor its conclusion that the CAR financing steps were not contrived or abnormal.

HMRC is entitled to revise its manuals where it concludes that its interpretation is wrong. It is not entitled to pretend that a materially different interpretation has always been the position, particularly where taxpayers and advisers relied upon the former published wording for more than a decade.

What the professions must now do

The tax profession must revisit the assumption that immediate company refinancing is equivalent to SIS for Incorporation Relief purposes.

Where advisers maintain that new borrowing raised by the company and paid to the transferors does not restrict relief, they must identify the statutory, concessional or judicial basis on which the new company liability is treated as the same business liability previously owed by the unincorporated owners.

Saying that refinancing is normal practice is not an answer.

Accountants and tax advisers should also review historic incorporations where a company raised new finance and provided the proceeds to the former owners to repay their existing mortgages. That does not mean every such transaction failed to obtain full relief. It means the financing documents, consideration and flow of funds must be examined rather than assumed to be harmless.

Solicitors and barristers involved in incorporation work must stop treating the conveyancing and tax stages as separate exercises. A transaction can transfer registered title perfectly, redeem every mortgage and satisfy every incoming lender while still producing an unintended tax result because of the form of consideration.

Mortgage brokers and lenders must recognise that the structure of the borrowing is not tax-neutral. Their insistence upon immediate redemption and replacement finance can affect whether the landlord receives full Incorporation Relief.

Professional indemnity insurers should also take notice. The judgment has placed the refinancing distinction firmly into the public domain. Continuing to ignore it will be far harder to defend than failing to identify it before the Tribunal exposed the issue.

What the judgment does not decide

The Tribunal proceedings concerned whether SIS and CAR were notifiable arrangements under the DOTAS legislation.

They did not determine that every landlord qualifies for section 162 Incorporation Relief, that every implementation produces its intended result or that every mortgage contract permits the relevant ownership and financing arrangements.

Eligibility for relief remains dependent upon the facts. There must be a qualifying business transferred as a going concern, the relevant assets must be transferred, the consideration and liabilities must be analysed correctly and the legal documentation must reflect what the parties actually do.

That does not weaken the article’s central conclusion.

The Tribunal expressly compared SIS with an incorporation involving refinancing and found that SIS enables the landlord to obtain full Incorporation Relief which might not be available under the refinancing route.

The appeals were allowed and HMRC’s Scheme Reference Numbers were cancelled because the requirements of the DOTAS descriptions relied upon by HMRC were not satisfied.

Property118 was right to challenge HMRC

Property118 was right to insist that landlord incorporation could not be understood by looking at tax in isolation.

It required an integrated analysis of the client’s business, existing mortgages, capital accounts, legal ownership, succession objectives, refinancing options and long-term commercial plans.

Property118 was also right to rely upon the legislation, ESC D32, HMRC’s published manuals, Simon’s Taxes and the commercial evidence of the landlords and advisers who had used the structures.

HMRC overlooked the Office of Tax Simplification report, failed to engage properly with the real-world reasons landlords incorporated and attempted to treat coordinated professional planning as a notifiable tax avoidance scheme.

The Tribunal rejected that case.

The judgment has now exposed two professional failures. The first was the assumption that immediate refinancing and SIS produced the same tax outcome. The second was the failure to act upon the clear warnings about refinancing and capital accounts contained in leading professional commentary.

The warnings were hiding in plain sight. Property118 identified them, built practical solutions around them and successfully defended those solutions against HMRC.

The tax, legal and mortgage professions must now explain why they did not.

HMRC also refused to meet with representitives of Property118 to discuss the points made in this article on three separate occasions spanning a year prior to the FTT hearing.

Evidence and source links

Readers should review the complete sources and obtain advice based on their own facts. Every external source used in this article is repeated below, with all links opening in a separate browser window or tab.

Tribunal judgment

Property 118 Limited & Anor v The Commissioners for HMRC [2026] UKFTT 1111 (TC)

https://caselaw.nationalarchives.gov.uk/ukftt/tc/2026/1111

The most relevant passages are:

• Paragraph 23: the potential restriction of Incorporation Relief where the company raises new finance to repay the existing mortgages and the uncertainty surrounding ESC D32.
• Paragraphs 40 and 41: the commercial and non-tax reasons for incorporation identified by the Office of Tax Simplification.
• Paragraphs 56 to 58: the warning in Simon’s Taxes B9.114 and Property118’s explanation of the financing problem.
• Paragraph 122: HMRC’s evidence concerning refinancing, ESC D32, Simon’s Taxes and its failure to consider the OTS report.
• Paragraphs 150 and 151: the finding that SIS provides a tax advantage by preserving full Incorporation Relief where refinancing can jeopardise it.
• Paragraphs 153 to 160: the Tribunal’s findings concerning the tax and non-tax reasons for incorporation and the costs and obstacles associated with immediate refinancing.
• Paragraphs 167 to 175: the analysis of CAR and the preservation of access to capital.
• Paragraphs 183 to 185: the finding that releasing capital was supported by leading professional commentary and that the CAR steps were not contrived or abnormal.
• Paragraph 187: the decision allowing the appeals and cancelling the Scheme Reference Numbers.

Incorporation Relief legislation

Section 162, Taxation of Chargeable Gains Act 1992

https://www.legislation.gov.uk/ukpga/1992/12/section/162

Transfer of liabilities and ESC D32

HMRC Capital Gains Manual CG65745

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65745

Simon’s Taxes

Simon’s Taxes professional tax reference service

https://www.lexisnexis.co.uk/products/tax/simons-taxes.html

The relevant subscription sections are B9.112, concerning substantial capital accounts before incorporation, and B9.114, concerning the risk created by company refinancing used to discharge the transferor’s existing property debts.

Current BIM45700

HMRC Business Income Manual: withdrawal of capital from a business

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

HMRC’s July 2026 update record

Business Income Manual updates

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

The record describes the BIM45700 amendments published on 1 July 2026 as providing clearer context and removing unnecessary numerical calculations.

Archived versions of BIM45700

Wayback Machine snapshot dated 1 May 2017

https://web.archive.org/web/20170501080657/https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

Wayback Machine snapshot dated 24 September 2023

https://web.archive.org/web/20230924132622/https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

Wayback Machine snapshot dated 10 February 2026

https://web.archive.org/web/20260210154433/https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim45700

Contemporary evidence of the earlier wording

January 2014 discussion quoting HMRC’s BIM45700

https://www.taxationweb.co.uk/forum/viewtopic.php?f=6&t=43129

Wholly and exclusively legislation

Section 34, Income Tax (Trading and Other Income) Act 2005

https://www.legislation.gov.uk/ukpga/2005/5/section/34

Office of Tax Simplification report

Property Income Review: Simplifying Income Tax for Residential Landlords

https://assets.publishing.service.gov.uk/media/63578305e90e0777b38c5d10/OTS_Property_Income_review.pdf

The relevant material includes the commercial reasons for incorporation and paragraphs 3.37 to 3.42 concerning borrowing used to release capital from a property business.

DOTAS legislation

Section 306, Finance Act 2004

https://www.legislation.gov.uk/ukpga/2004/12/section/306

Section 311B, Finance Act 2004

https://www.legislation.gov.uk/ukpga/2004/12/section/311B

Property118 analysis of HMRC’s rewrite

HMRC’s quiet rewrite could trap profits landlords have already paid tax on

https://www.property118.com/hmrcs-quiet-rewrite-could-trap-profits-landlords-have-already-paid-tax-on/

Open letter to HMRC: What changed in the law behind BIM45690 and BIM45700?

https://www.property118.com/open-letter-to-hmrc-what-changed-in-the-law-behind-bim45690-and-bim45700/

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Can a landlord end a commercial care company lease?

Property118

Can a landlord end a commercial care company lease?

Hello, I rent a house commercially to a private care company under the government-run SEND (Special Educational Needs and Disabilities) contract which began in Oct 2025.

The monthly rent has always been weeks late after written prompts – June/July 2026 rent is unpaid to date.

I’ve had no replies to messages from the tenant. He asked to end the contract in March 2026, I agreed and asked for it be in writing to sign (the tenant wrote the contract out).

I asked again in May for termination paperwork and was willing to backdate to March. Still no paperwork.

Tenant states he was refused planning outright in March and couldn’t appeal. This is untrue as planning appeal is in force to date.

I have made a small court claim thinking it would prompt him but still nothing.

I now want to end the contract as I believe the tenant is in breach of contract.

Any advice would be helpful.

Richard

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