PROPERTY 118 and Cotswold Barristers have won their appeal against HMRC in “major win for landlords” – but experts warn “this ruling is not a loophole or a free pass”.
They have won their legal case against HMRC over the way it advises landlords to move their rental properties into a limited company.
The decision, made by the First-tier Tribunal, ruled that the two sets of landlord incorporation arrangements were not notifiable under the specific Disclosure of Tax Avoidance Schemes (DOTAS) rules HMRC had relied on.
As a result, the associated Stop Notice also fell away, removing the DOTAS designation placed on the arrangements.
According to Property118, this will provide greater certainty for landlords and the professionals who advise them after more than two years of uncertainty.
The dispute had left many landlords, accountants, solicitors, mortgage brokers and lenders unsure whether Property118’s approach was acceptable under tax rules.
That uncertainty affected landlords making major financial decisions, such as planning for retirement, passing their property business on to their children or restructuring their finances.
Property118 said it took the case to an independent tribunal to get a clear legal ruling rather than leaving the issue open to conflicting interpretations.
It claims the judgment now gives landlords and advisers a clearer understanding of the rules and hopes it will bring confidence back to those considering incorporating their property business.
But experts have pointed out that the ruling did not determine that every landlord qualifies for Section 162 Incorporation Relief, stamp duty relief or that incorporation is suitable for every portfolio. Each case still needs individual tax, legal and financial advice.
Eligibility and commercial suitability for legitimate business restructuring will continue to depend on each landlord’s circumstances.
Significant win
Bob Singh, Founder at Chess Mortgages and on the panel of Property118 brokers, said it takes away some of the uncertainty that landlords and lenders face.
He added: “This decision puts to rest, for now at least, the uncertainty that has dogged worried landlords for the last two years. The substantial incorporation system (SIS) was a legal strategy to help landlords counter the effects of Section 24 changes which led thousands of landlords worse off and HM Treasury better off due to the restriction of relief being limited to a tax credit of 20% on the interest paid.
“Many lenders unfamiliar or wary of the law and accounting principles surrounding the SIS naturally treated it with caution. Some lenders assisted clients to complete the ‘incorporation’ process by moving the title to the limited company. In reality this is a client-friendly method as properties can be transferred to the limited company as and when the fixed rates expire.
“The alternative is to suffer huge exit fees. Most of these clients are professional landlords who run their portfolios as a business. The ruling paves the way for more lenders to open their doors.”
Samuel Mather-Holgate, Managing Director & IFA at Mather and Murray Financial, said it’s a win for landlords but cautioned against seeing it as a “free pass”.
He added: “This is a significant win for landlords and their advisers, but it does not mean every buy-to-let owner should rush to incorporate. The tribunal cancelled HMRC’s decision to issue Scheme Reference Numbers, which matters because that kind of warning label can make sensible tax planning look suspicious before the detail has been properly tested.
“For landlords, the key point is simple: incorporation is not wrong in itself. It can help some larger landlords with long-term planning, reinvestment and passing property on, but it still has to be right for their circumstances. Tax, mortgages, ownership, future income and costs all matter. This ruling is not a loophole or a free pass, it is a reminder that proper advice, clear paperwork and a genuine commercial reason remain essential.”
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said while it removes a major barrier for landlords, they still need to seek professional advice.
She added: “This is a major victory for Property118, but it is not a permission slip for every landlord to incorporate. The tribunal has cancelled HMRC’s Scheme Reference Numbers, removing the DOTAS label and the Stop Notice that had placed a cloud over these structures. That should restore confidence and reopen conversations many landlords and advisers had understandably frozen. But winning the DOTAS argument is not the same as winning every tax argument.
“The ruling does not automatically confirm Section 162 relief, stamp duty treatment, mortgage compliance or the outcome for every portfolio. Incorporation remains a forensic, case-by-case decision involving the business test, ownership, debt, lender terms and long-term plans. The sector should celebrate HMRC being successfully challenged, but not turn the judgment into a marketing slogan. It removes a major barrier but it does not remove the need for proper advice.”
Calm before a storm
Harvey Dhillon, Founder & CEO at Zmartly, agreed that landlords still need to seek advice because “the risk has moved”.
He added: “A scheme reference number was never HMRC saying the planning works. The law is clear that a number is not a ruling on tax advantage, and if a tribunal cancels the allocation HMRC must withdraw the number. Ten days in the First-tier tribunal are reported to have removed a label. Removing a label is not the same as being told your planning is right.
“For the buy-to-let sector, the risk has moved. It is no longer a warning label on your file. It is your own paperwork. Nothing here changes the rules on moving a rental business into a company. What decides that is whether your letting is really run as a business, and whether you claim.
“Incorporation relief puts off a capital gains tax bill when the business moves across. It used to be automatic. For transfers from 6 April 2026 you have to claim it, and a 2026-27 move needs it in by 31 January 2029. Miss the date and you lose the relief. The number to remember is not a scheme reference. It is 31 January 2029.”
Mark Hosker, Mortgage Adviser at Cyborg Finance, questioned whether the ruling actually changes anything.
He added: “My understanding is that HMRC insisted that Property118 register the scheme under DOTAS, but it failed to do so. This successful appeal asserts that Property118 didn’t need to register the scheme. It says nothing about the legality of the scheme. The decision is limited to the DOTAS notification question.
“It does not decide whether the underlying tax planning is effective, whether section 162 incorporation relief is available in any given case, whether capital account restructuring works as intended, or any other question about the substantive legality or tax treatment of the arrangements. Property118’s own plain-English summary of the judgment makes exactly this distinction.”
Patricia Ogunfeibo, Founder & non-practicing Solicitor at tenant2owner, doesn’t think this is the last we will hear about the case.
She added: “This is an interesting case that I suspect is only in its infancy – it may well go all the way up to the Supreme Court. The silence around it, apart from Property 118 itself, makes it feel like the calm before a storm.”
Photo by Mohamed Ziyaadh on Unsplash.
