Rebuttal to The Telegraph’s Article: “Landlords face six-figure bills in tax avoidance row”

We appreciate The Telegraph’s interest in recent developments concerning Property118, but the article titled “Landlords face six-figure bills in tax avoidance row“ contains several inaccuracies and mischaracterisations that need to be addressed.

Clarifying the Nature of the Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) Arrangements

The Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) arrangements offered by Property118 were developed as legitimate and commercially necessary tax planning solutions, designed to help landlords manage their property portfolios in response to the government’s tax reforms, specifically the introduction of Section 24 of the Finance Act 2015. This legislation disproportionately penalised landlords by disallowing mortgage interest relief, especially affecting smaller landlords.

The SIS and CAR arrangements were never designed to “swerve” tax liabilities, as suggested in the article. Rather, they offer commercially-driven solutions that allow landlords to restructure their businesses within the boundaries of UK tax law. The advice and strategies we offer were created in consultation with tax counsel and legal experts, including Cotswold Barristers, and were grounded in legal precedent and sound commercial reasoning. It is unfair and inaccurate to portray these arrangements as schemes solely designed to avoid tax, as they were always intended to solve real-world business problems faced by landlords.

HMRC’s Recent Actions and Scheme Reference Numbers (SRNs)

The issuance of Scheme Reference Numbers (SRNs) by HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation does not, in itself, imply wrongdoing or that the arrangements are unlawful. It is an administrative measure that allows HMRC to monitor the use of certain tax arrangements, not a definitive ruling on their legality. The article’s failure to explain this critical distinction leads to the misconception that the allocation of SRNs proves these structures were tax avoidance schemes.

Property118 has always been transparent in its operations. When SRNs were issued for SIS and CAR, we immediately paused offering these structures and sought further legal clarification. The issuance of these numbers is part of an ongoing inquiry, and Property118 has lodged a formal appeal to challenge the appropriateness of these designations. We remain confident that these structures, designed to address commercial needs such as refinancing and portfolio restructuring, comply fully with UK tax law.

Similarly, the “Stop Notice” issued by HMRC on the CAR arrangement in July 2024 is part of an ongoing legal process. Our appeal demonstrates our belief that HMRC has misinterpreted the commercial motivations behind the structure. While HMRC’s investigations continue, it is incorrect to imply that landlords who have used these arrangements are automatically facing significant tax liabilities.

Addressing Concerns About Mortgage Lenders and SIS Participants

The suggestion that participants in the Substantial Incorporation Structure (SIS) face potential default on their mortgages due to non-disclosure is misleading. SIS was specifically designed to provide landlords with flexibility during the incorporation process, particularly in managing refinancing and novating mortgages. The structure allows for the transfer of beneficial ownership while retaining legal title, ensuring that mortgage lenders’ security interests remain fully protected.

Under UK law, particularly the Law of Property Act 1925 (Sections 85-87 and Section 114), a lender’s rights are tied to the legal title, which remains unchanged during the SIS process. As such, lenders retain full security over the property, and there is no impact on the mortgage agreement until refinancing occurs at a commercially suitable time.
Importantly, no mortgage lenders have challenged the use of SIS or issued breach notices as a result of the beneficial ownership transfer. In practice, lenders have continued to refinance properties transferred under SIS, demonstrating their commercial acceptance of this structure.

SIS is not a vehicle for avoiding tax or circumventing mortgage agreements—it is a commercially necessary and sound approach that allows landlords to incorporate while managing their financing obligations effectively.

Misrepresentation of Fees and Client Numbers

The claim that one landlord was charged £50,000—over 1% of their property portfolio value—is presented without context and risks misleading readers. The fees charged by Property118 are competitive and reflect the complexity of the work involved. They cover comprehensive legal, tax, and compliance services, not merely a “plan” to avoid tax. In high-value portfolios, the level of professional input required naturally increases, but this fee structure is consistent with industry standards for such services.

The article also exaggerates the number of landlords affected by the structures, suggesting that as many as 1,000 have used SIS and CAR. In fact, around 460 landlords have used these arrangements, and this has been clearly communicated by Property118. The higher figure suggested by Dan Neidle, while speculative, lacks any supporting evidence.

Ongoing Legal Challenge and Support from the Property118 Community

Property118 is raising funds to defend the SIS and CAR structures through legal channels because we strongly believe in their legitimacy. The support from landlords, who have contributed over £285,000 to the legal fund, reflects the confidence that our clients have in the structures and in the commercial logic that underpins them. We are prepared to take this matter through the appropriate legal processes, including the First-tier Tribunal, where we will robustly defend our position.

Contrary to what is suggested in the article, seeking financial contributions from clients is not unusual in complex legal disputes of this nature. Many affected individuals are fully invested in proving the commercial legitimacy of these structures, having relied on them to address the financial challenges created by government tax reforms.

Conclusion

The Telegraph’s article misrepresents the situation surrounding Property118 and the tax planning structures it offers. SIS and CAR are commercially necessary strategies, designed to provide landlords with solutions to real-world challenges, not avoidance schemes designed to escape tax liabilities. The allocation of SRNs is part of an ongoing inquiry, and it is not definitive proof of wrongdoing.

We remain committed to defending the legitimate and lawful use of these structures and to supporting landlords who have made sound commercial decisions in response to punitive tax reforms. Property118 will continue to engage with HMRC through legal channels to resolve these matters and provide clarity for all affected parties.

Share This Article