14:24 PM, 23rd August 2024, About 4 months ago 95
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When the letter from HMRC landed on my doormat, I barely gave it a second thought. It seemed like just another piece of bureaucratic correspondence. But as I unfolded the paper and scanned the contents, the words “compliance check” hit me like a punch to the gut. My casual indifference evaporated, replaced by a chilling realisation: I was facing a tax investigation.
My heart began to race, my mind spinning with anxiety, fear, and a growing sense of helplessness. HMRC was scrutinising the validity of a rolled-over relief I’d been assured was my right when my wife and I transferred our entire property investment business partnership to our own Limited Company in exchange for shares. We had done everything by the book, or so I believed. The idea that we could owe Capital Gains Tax when we hadn’t pocketed a single extra penny seemed absurd. Property118 had explained that this particular relief would defer any CGT until we eventually sold our shares, and we had double-checked this with our accountants. We even held a meeting with them and Property118 to thoroughly analyse the legislation, case law, and HMRC manuals. We moved forward with confidence, convinced that everything was airtight.
But as I reread the letter, doubt began to creep in. What if HMRC disagreed?
We responded swiftly, providing all the information HMRC requested. Yet, weeks turned into months with no reply. The silence was deafening, each day amplifying our fears. My wife and I started exploring worst-case scenarios: How much CGT would we owe if HMRC denied the relief? What would it take to appeal such a decision? How much time, money, and emotional energy would that consume?
The mental strain was relentless. It’s hard to describe the cloud of dread that looms over you when your financial future hangs in the balance, and yet, for HMRC, this was just another day at the office. The letters kept arriving, each one demanding more documentation—tenancy agreements, property valuations, mortgage details, contracts, full accounts, mortgage statements, bank statements. The list seemed endless. HMRC even wanted to know the minutiae of how we ran our business: how much time we dedicated to it, why we used agents to find tenants, what services those agents provided, and which contractors we employed and why.
It felt like we were trapped in a never-ending nightmare.
Our only comfort came from the unwavering support of Property118, our accountants, and our barristers. They were patient, thorough, and consistently reassuring. But despite their confidence, we couldn’t shake the nagging fear that this might end in disaster—a Capital Gains Tax bill so enormous it would force us to dismantle the business we had spent decades building.
It was as if we were on trial for a crime we didn’t even know we could commit. What if we had made a mistake? How could we live with that? Would we be able to face our friends and family? The shame and guilt of being duped, of having put our trust in professionals only to have it backfire, weighed heavily on our minds.
HMRC also seemed fixated on why we decided to incorporate our rental property business. It’s only now that I realise they might have suspected we were exploiting a loophole to avoid taxation. But that wasn’t our motivation. As business owners, we have a duty to structure our affairs in the most efficient way possible, not just for tax purposes, but for the future of our business and our family. We had always hoped that our children would take over the business when we retired, continuing our legacy for generations. That’s the advantage of a Limited Company structure, even though it wasn’t something we considered when we started out decades ago. Back then, when Buy-To-Let was a novel investment strategy, Limited Company Buy-To-Let mortgages were scarce and prohibitively expensive. That’s why we initially built the business in our own names.
But times changed. By 2015, it made far more sense to operate within a Limited Company structure. The commercial benefits were clear, and the trend had shifted as Buy-To-Let financing became more risk-based. We adapted, but now, it felt like that decision was under siege.
Then, one day, our accountant emailed us with the subject line: “Closure Notice from HMRC.” My stomach dropped. Did this mean we were in the clear, or was this just the prelude to a crushing tax demand?
It took us a few minutes to muster the courage to call our accountant. I made the call, but my wife sat beside me, clutching my hand, her face pale with anxiety. This was the moment we had been dreading, the moment that could change our lives forever.
“Have you read the letter from HMRC attached to my email?” our accountant asked. We hadn’t even noticed it in our haste to seek answers. We apologised and asked him to explain it in layman’s terms.
“HMRC has accepted that you’re entitled to the reliefs,” he said calmly. “Your tax returns don’t need to be amended, and you don’t have any further tax to pay.”
Relief flooded over me like a tidal wave. I jumped out of my chair and punched the air, shouting with joy as if England had just won the World Cup. My wife broke down in tears, sobbing with a mixture of relief and exhaustion. The nightmare was finally over.
Since that day, both I and my accountant have sung the praises of Property118 to every landlord we know. Their expertise, their guidance—it had all been vindicated.
But then, in September 2023, I came across articles by Dan Neidle, accusing Property118 of promoting an abusive tax avoidance scheme. I was stunned. At first, I thought it would be quickly resolved, but I was wrong.
Within days, Neidle reported that HMRC had opened an investigation into Property118. Suddenly, it seemed like everyone—lawyers, tax advisers, the media—was piling on, branding Property118 as a scam run by crooks. How could this be happening after everything I’d been through?
The messages from people I’d shared my experiences with started pouring in. “Have you heard about the investigation into Property118?” they would ask. “Sounds dodgy to me,” they’d say. “You must be worried.”
Initially, I wasn’t worried. But now, those same dark thoughts are creeping back into my mind. Can HMRC reverse a closure notice? Could they really change the rules after the fact? Where’s the justice in that? If not, why are they targeting Property118?
The only explanation that makes any sense is that HMRC panicked, buckling under the immense negative media pressure aimed solely at Property118—my advisers, who had stood by me every step of the way!
To my knowledge, no other companies offering similar services have been accused of failing to disclose a disclosable tax avoidance scheme for recommending incorporation. Nor have they received Stop Notices from HMRC.
My frustration has now turned into anger. How can the opinion of one man lead to such drastic consequences? Why should every client that Property118 assisted now endure the same anxiety I once did?
Perhaps Mr. Neidle’s legal analysis isn’t flawed. But if that’s the case, why was the HMRC investigation into my business closed? I can only conclude that either my incorporation was entirely legitimate, as HMRC agreed, or that HMRC’s handling of my investigation and the 20+ other investigations into Property118 clients were all deeply incompetent, exposing countless landlords to unnecessary risk in the years that have since passed. I can’t believe for a second that the latter is true, so what does HMRC hope to get from further investigations? Does it hope to prove that it has previously been grossly incompetent in its handling of 20+ investigations, by concluding that everything had been done correctly and the correct reliefs had been claimed?
Please forgive me for choosing to share these thoughts anonymously – I trust you will understand my reasoning.
PAUL BARTLETT
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Sign Up14:44 PM, 20th September 2024, About 3 months ago
Reply to the comment left by Mark Alexander - Founder of Property118 at 28/08/2024 - 11:33
"The Stop Notice prevents Property118 from promoting or assisting clients to arrange a Capital Account Restructure."
"The most logical option available to us is to appeal the Stop Notice, and the Scheme Reference Numbers issued under DOTAS legislation, to the Tax Tribunal"
Please advise if you have appealed and when the Tax Tribunal will hear that?
I suspect that many potential customers would like to know and plan accordingly...
Mark Alexander - Founder of Property118
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Sign Up15:06 PM, 20th September 2024, About 3 months ago
Reply to the comment left by PAUL BARTLETT at 20/09/2024 - 14:44
Hi Paul
Yes we have appealed and all clients are aware of the process.
We cannot put a specific timescale on this because there are a number of options available for us and HMRC on the table to consider.
We remain very confident that we have a strong case.
Rumble
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Sign Up15:34 PM, 20th September 2024, About 3 months ago
Reply to the comment left by Mark Alexander - Founder of Property118 at 20/09/2024 - 15:06
HMRC doesn't seem to be much inclined towards reconsideration and have listed Property 118 as a promoter/supplier of a tax avoidance scheme.
https://www.gov.uk/government/publications/named-tax-avoidance-schemes-promoters-enablers-and-suppliers/current-list-of-named-tax-avoidance-schemes-promoters-enablers-and-suppliers#property118-ltd
Mark Alexander - Founder of Property118
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Sign Up15:58 PM, 20th September 2024, About 3 months ago
Reply to the comment left by Rumble at 20/09/2024 - 15:34
For now
patricia sander
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Sign Up16:16 PM, 20th September 2024, About 3 months ago
Reply to the comment left by Mark Alexander - Founder of Property118 at 20/09/2024 - 15:58
How can HMRC renege on the 20 plus cases they have already approved? DN is on full insult mode on X today but he fails to mention that HMRC have already approved a sizeable amount of incorporations and accepted that the procedure was within their own guidelines? This is so confusing and it's increasingly hard to see what the problem is?! I hope Mark A and Mark S are monitoring his comments, he seems quite slanderous and has definitely damaged both their business and reputation.
Mark Alexander - Founder of Property118
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Sign Up16:31 PM, 20th September 2024, About 3 months ago
Reply to the comment left by patricia sander at 20/09/2024 - 16:16
We are
PAUL BARTLETT
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Sign Up12:52 PM, 23rd September 2024, About 3 months ago
Reply to the comment left by Mark Alexander - Founder of Property118 at 20/09/2024 - 15:06Hi Mark
I trust that you will continue to provide public information on this platform for prospective clients too. It's very frustrating not to be able to make progress in these turbulent times.
Mark Alexander - Founder of Property118
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Sign Up14:37 PM, 23rd September 2024, About 3 months ago
Reply to the comment left by PAUL BARTLETT at 23/09/2024 - 12:52
Yes we will share what we can when we can. Sometimes, being in legal batttles stops you speaking as freely as you might wish.
Beaver
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Sign Up16:08 PM, 23rd September 2024, About 3 months ago
The information in the links that you provide give a description of 2 schemes. Scheme entry 1 is described as follows:
Users enter into a ‘Sale and Purchase Agreement’ to sell their property business to a company wholly in exchange for shares. They also enter a Trust Deed, Agency Agreement and Contract for Sale. The trust holds the legal interest in the properties and the Contract for Sale allows for a delay on the transfer of legal titles. The mortgage liabilities are not actually transferred or repaid. Instead, the company adopts responsibility for the liabilities in the form of an indemnity. Users are appointed as agents of the company to make and receive payments, including mortgage payments for the properties. Once the transfer has taken place, the company holds the beneficial interests in the properties. It also, as per the indemnity, reimburses the user for the mortgage payments the user makes, and claims interest relief against its profits. It is claimed that there is no capital gains tax on the sale due to rollover relief for transfer of business assets.
And scheme entry 2 is described like this:
Scheme users, a company they manage, and a lender enter a ‘facility agreement’ for a bridging loan. Users then enter an agreement to sell their property business to their company in exchange for shares. A trust holds the legal interest in the properties and a Contract for Sale is used to delay the transfer of legal title. The business’ liabilities are not actually repaid; the company adopts responsibility for them in the form of an indemnity. Users are appointed agents of their company to handle its payments. Users draw down the bridging loan prior to the sale completion; however, the company will become responsible for the loan post transfer and will not have funds to repay the loan. After the transfer, the users loan the company the required amount to repay the bridging loan. The users’ director’s loan account is credited with the loaned amount, which they expect to draw from tax free. It is claimed that no capital gains tax is due on the sale due to rollover relief for transfer of business assets.
It's not clear from the descriptions provided by HMRC which bits of these schemes they don't like and the information makes no reference that I can see either to statute law or to case law.
I can't see any reason why you can't still potentially incorporate a non-incorporated property business and claim roll-over relief but I suspect that whether you can or can't do it probably depends upon your own specific circumstances. But this does leave a the market in limbo wondering how the case will work out at a time when a lot of people are worried about Rachel Reeves attacking their assets in October.
And I can't really see what either HMRC or the government will really gain from this given that they actually need companies to continue investing in the residential property sector and that the government has been pursuing policies favouring incorporated residential property businesses for years.
The shocker of course is that the tax system still disproportionately penalises the majority of small investors.
Mark Alexander - Founder of Property118
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Sign Up16:16 PM, 23rd September 2024, About 3 months ago
Reply to the comment left by Beaver at 23/09/2024 - 16:08
Thank you for your thoughtful comment.
You’re correct that HMRC has provided descriptions of two structures (Substantial Incorporation Structure, SIS, and Capital Account Restructure, CAR) without clarifying which specific elements of these strategies they take issue with, nor have they referenced statute law or case law in their publication. This lack of detail leaves many in a position of uncertainty, as it doesn't explain what specific aspects HMRC finds problematic.
Clarity on Rollover Relief and Incorporation:
As you rightly point out, incorporation relief (rollover relief under Section 162 of the Taxation of Capital Gains Act 1992) is a well-established statutory relief designed to enable businesses, including property businesses, to transfer assets into a company in exchange for shares without triggering an immediate CGT liability. The principles of this relief have been applied across various sectors, including property businesses, for many years, and many of our clients have relied on this statutory relief in good faith.
Commercial Motivations for SIS and CAR:
The strategies that Property118 supports, such as SIS and CAR, are designed with commercial, not purely tax-driven, motivations. For many landlords, SIS offers flexibility by allowing them to transfer the beneficial interest in their property business to a company without triggering expensive early repayment charges, and it provides a more commercially viable route to incorporation, particularly when mortgage novation isn’t possible. CAR provides liquidity through bridging finance to withdraw capital from the business before incorporation, enabling landlords to preserve the commercial integrity of their operations without incurring punitive tax consequences on capital they’ve already paid tax on.
HMRC’s Lack of Clarity:
What is currently missing from HMRC’s publication is any explanation of which legal aspects they believe are contravened by these structures. We believe that both SIS and CAR are fully compliant with UK tax law, and the statutory reliefs are there to support legitimate business operations. Without further clarification, HMRC’s notice appears to lack the necessary legal grounding to justify their position, leaving many investors and professionals unsure of what exactly HMRC is challenging.
The Unintended Consequences:
As you pointed out, this ambiguity puts the market in a difficult position, particularly at a time when many landlords are concerned about potential future policies. The government's need for continued investment in the residential property sector seems at odds with actions that could discourage incorporation, especially given that the tax system has, over the years, increasingly favoured incorporated property businesses.
At Property118, we remain committed to defending the legitimacy of these strategies and will continue to provide support to clients who are affected by this uncertainty. We believe that transparency and adherence to statutory reliefs should be at the heart of tax planning for property businesses, and we continue to challenge HMRC’s stance through the appropriate legal channels.
I agree with your final point that the current tax system still disproportionately penalises small investors, and we share your concerns about what the broader impact of this HMRC action could mean for the market.
Thank you again for your comment. Please feel free to reach out if you have further questions or need any support in navigating these uncertain times.