Property118 v HMRC: what the tribunal ruling means for landlords

A First-tier Tribunal has ruled in favour of Property118 and Cotswold Barristers in a long-running dispute with HMRC over whether two landlord portfolio incorporation arrangements should have been disclosed as notifiable tax avoidance schemes, but industry figures and legal commentators are divided over what the result actually means for the landlords caught up in the case.

The judgment, which was revealed on July 31, cancelled the Scheme Reference Numbers (SRNs) that HMRC had issued in February 2024 to the Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) arrangements under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. The associated stop notice, which had made it a criminal offence for Property118 to continue promoting the arrangements, also fell away.

The ruling arrives at a significant moment for the sector. According to research published by estate agency Hamptons in February, a record 66,587 buy-to-let limited companies were incorporated in the UK during 2025 – an 8% rise on 2024 – bringing the total registered with Companies House to 443,272.

What was the case about?

The DOTAS regime is a disclosure mechanism. It asks whether arrangements had to be reported to HMRC, not whether they are legally effective. Cancelling the SRNs resolves the disclosure question only. It does not determine whether any individual landlord who used SIS or CAR is entitled to the tax reliefs they claimed, and HMRC's enquiries into those clients' personal tax positions remain open and entirely separate from this ruling.

Both arrangements were designed to help landlords transfer property investment businesses – typically run by married couples as partnerships – into limited companies, while avoiding the need to refinance existing mortgages at the point of incorporation. They became widely used among portfolio landlords seeking to mitigate the effects of Section 24 of the Finance (No. 2) Act 2015, which restricted mortgage interest relief for individual landlords but not for companies.

The Tribunal found that, while obtaining a tax advantage was one of the main benefits of both arrangements, obtaining Incorporation Relief was not the main purpose of SIS – a distinction that proved decisive under the specific DOTAS hallmark HMRC had relied upon. It identified genuine non-tax drivers including landlords' inability to refinance due to cladding issues, the desire to preserve favourable mortgage terms, and the prohibitive cost of triggering early repayment charges across large portfolios.

What are industry figures saying?

Mark Alexander, founder of Property118, told Mortgage Introducer the result replaced two years of regulatory uncertainty with substantive judicial findings. "It removes HMRC's DOTAS designation at First-tier Tribunal level and replaces many of the allegations previously made about the arrangements with detailed judicial findings about what they were designed to achieve and why landlords used them," he said. He acknowledged its limits, however. "The Tribunal was not asked to decide whether every individual landlord carried on a qualifying business, whether every set of documents was implemented correctly or whether Incorporation Relief was available on every client's particular facts. Those individual questions remain separate."

Bob Singh, founder of Chess Mortgages and a member of Property118's broker panel, told Mortgage Introducer the ruling eased some of the uncertainty that had weighed on landlords and lenders alike, but stopped short of declaring the matter resolved. "It's not fully resolved," he said. "We do have some lenders that are still entertaining Property118 business, but with a caveat from the accountant that this was done properly and under tax advice and everything else."

Nouran Moustafa, executive financial and mortgage adviser at Roxton Wealth, described the outcome as a rare piece of positive news for a sector that has faced sustained pressure. "Property118 winning their case against HMRC is very good news, and it's finally something positive towards landlords," she told Mortgage Introducer. "The consequences of Property118 losing their case against HMRC would have reflected negatively on the buy-to-let market more than it's already negatively affected because of government policies."

Not all commentary has been positive. Tax Policy Associates, a non-profit tax research organisation, published analysis arguing that the Tribunal misdirected itself, contending that the non-tax reasons identified were characteristics of how Property118 structured its product rather than the broader purpose of the product itself, which throughout Property118's own marketing was presented as tax-driven. It described the decision as eminently appealable and argued HMRC had good prospects at the Upper Tribunal. Property118 has disputed that characterisation.

What happens next for landlords?

The case is not yet concluded. HMRC has 56 days from the 31 July judgment to seek permission to appeal to the Upper Tribunal, placing the expected deadline at around 25 September. A HMRC spokesperson has confirmed to Mortgage Introducer the authority will be seeking permission to appeal the First-tier Tribunal decision.

Separately, a substantive hearing on the tax treatment of the arrangements is listed before the First-tier Tribunal in October. That hearing is expected to address directly whether Incorporation Relief was available to affected landlords and whether the arrangements were properly implemented. Its outcome will carry considerably more practical weight for affected landlords than the DOTAS ruling itself.

HMRC also updated its Capital Gains Manual on 20 August, amending guidance at CG65715 to clarify that an individual spending fewer than 20 hours a week managing their properties may still qualify as running a business for Incorporation Relief under section 162 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992). The amendment does not change the underlying law but removes the suggestion that 20 hours represented a firm minimum threshold.

The consistent message from across the industry is that this ruling does not amount to a green light. Open HMRC enquiries remain in place for many existing Property118 clients, and whether any individual's arrangements qualify for Incorporation Relief turns on their specific facts – questions that will be tested in October, not settled by this decision.

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