Tribunal cancels Property118 incorporation scheme reference numbers

The First-tier Tribunal has cancelled the scheme reference numbers HMRC issued for Property118’s Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR). It allowed the appeals by Property 118 Limited and Cotswold Barristers LimitedNationalarchives, finding that neither arrangement met the disputed disclosure hallmarks under the Disclosure of Tax Avoidance Schemes (DOTAS) regimeNationalarchives.

The decision concerns whether the arrangements were notifiable. It does not resolve the separate enquiries and assessments concerning individual users’ tax liabilities. Advisers should keep that distinction explicit when explaining the result to landlords who incorporated their property businesses through these structures.

SIS transferred beneficial ownership of a property business to a company while leaving legal title and existing borrowing with the former owners, supported by trust, indemnity and agency arrangements. CAR added short-term borrowing and a director’s loan account intended to preserve access to capital previously invested in the business.

The tribunal rejected the argument that the documentation was materially tailored for each client. The operative terms remained substantially standardised; inserting client-specific details and undertaking extensive suitability discussions did not change that conclusion. The standardised tax products hallmark nevertheless failed because its purpose and “but for” tests were not satisfied.

For that hallmark, the judgment distinguished obtaining a tax advantage as the main purpose from obtaining it as one of several main purposes. Commercial reasons included retaining favourable mortgage terms, avoiding immediate refinancing costs and facilitating succession and business continuity. Looking at the arrangements as a whole, the tribunal did not find tax advantage to be the main purpose.Nationalarchives It also found that at least some users would have entered the arrangements for non-tax benefits without the expectation of a tax advantage.

HMRC’s additional arguments concerning CAR also failed. The tribunal found that the financing and arrangement fees were commercially explicable and were not shown to satisfy the premium-fee hallmark. It also rejected the alleged contrived or abnormal steps under the financial-products hallmark: short-term independent finance and restoring access to invested capital had commercial explanations. Completing borrowing and repayment on the same day did not itself establish abnormality.

The tribunal did find that obtaining tax advantages was a main benefit for the general statutory test. That finding was insufficient to make the arrangements notifiable without a prescribed hallmark. The result therefore requires a separate assessment of each relevant hallmark, rather than treating either tax benefits or standard documents alone as conclusive.

The legal framework is sections 306 and 311B of the Finance Act 2004 and the disputed hallmarks in descriptions 3, 5 and 9 of the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006.