Property118 Wins Tribunal Battle With HMRC – What It Means For Landlords

Great News For Landlords Considering Incorporation.

After more than two years of uncertainty, landlords considering incorporating their property business finally have the clarity they have been waiting for.

The First-tier Tribunal has ruled in Property118’s favour, overturning HMRC’s decision to classify its incorporation arrangements under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

In simple terms, the Tribunal found that HMRC was wrong to issue the Scheme Reference Numbers it relied upon, meaning the associated Stop Notice also falls away.

The Tribunal heard evidence that the arrangements were supported by genuine commercial considerations, including avoiding unnecessary refinancing and allowing borrowing to be replaced when it made commercial sense. Rather than forcing landlords to refinance every mortgage immediately, it allowed refinancing to take place when it made commercial sense, helping to preserve favourable borrowing and giving landlords greater flexibility over how they structured their business.

See also: Good News For Landlords Planning Their Next Move

Following the Tribunal decision, Property118 has resumed its incorporation consultancy after more than two years on hold, and landlords who delayed reviewing whether a limited company might suit their long-term plans can once again seek advice.

What That Means For Landlords

The judgment doesn’t mean every landlord should rush to incorporate or that everyone will qualify for the tax reliefs available. As with any significant business restructuring, each case has to be considered on its own merits.

Whether it is suitable will depend on factors such as:

• whether you’re genuinely running a property business rather than simply owning investment properties
• whether you qualify for the available tax reliefs, such as Incorporation Relief
• your existing mortgage arrangements and refinancing plans
• your future objectives, such as growing your portfolio, reducing tax, succession planning or preparing for retirement
• whether incorporation makes commercial sense as well as tax sense for your particular circumstances.

What the judgment does mean is that landlords can once again seek professional advice from Property118 to establish whether incorporation is appropriate for them and, if so, the most suitable way to proceed.

Why Incorporate At All?

For many landlords, tax is only one part of the decision.

Property118 says landlords commonly consider incorporation to:

• deduct qualifying finance costs when calculating company profits, subject to the normal corporation tax rules
• defer Capital Gains Tax where Incorporation Relief is available when transferring a qualifying property business into a company
• create a business structure that can make succession and family ownership easier
• separate business assets from personal ownership
• plan retirement or gradually bring children into the business
• choose when to refinance mortgages rather than necessarily replacing every loan immediately

For more information, or to find out whether incorporation may be suitable for your circumstances, see: https://property118.com/consultation