This article explains what the FTT was actually asked to decide, why the cancellation of a SRN should not be mistaken for HMRC's approval of the underlying tax outcome, and which aspects of your position remain unaffected by the decision. It examines the statutory powers and hallmarks on which HMRC relied, the reporting obligations triggered by the allocation of an SRN, and the practical consequences of those numbers now being withdrawn.
If you are simply looking for a general introduction to running a portfolio through a company, this is not that article. It deliberately does not assess whether incorporation relief is available to any particular landlord, whether a specific structure works, or whether an open enquiry will succeed. Those questions were not before the FTT.
Key Takeaways
What SIS & CAR Involve?
Neither structure is complicated once the documents are laid out. SIS is effected by four documents executed on the same day: a sale and purchase of partnership agreement, a declaration of trust, an agency agreement and a property sale contract (para 20). Their combined effect is that the beneficial interest in the properties passes to a new company ("NewCo") while the legal title, and the landlords’ liability to the existing lender, stay where they are. NewCo indemnifies the landlords for amounts due on the existing debt, and they act as its agents in collecting rent and paying expenses. The design intention was to avoid an immediate refinancing at incorporation (paras 23(3), 56). Whether a particular mortgage required notification or consent depended on its terms, which the appellants accepted varied case by case (para 87(3)), and was not an issue in this appeal.
CAR is SIS plus one further element. Under a bridging facility the landlords borrow a sum, lend the same sum to NewCo, and NewCo uses it to repay the bridging lender on the same day, leaving NewCo owing that amount to the landlords on loan account (para 21). A fee of 1% goes to the bridging lender and a further 1% to Property 118. The object is that the landlords can later draw that loan account down as repayments, without income tax or National Insurance, and without the reduction in incorporation relief that a conventional director’s loan created on incorporation would cause (para 22(4), para 23(4)).
What HMRC Actually Did, & Under Which Power
To understand what was won, it helps to know precisely what HMRC had done. This was not a case where a promoter disclosed a scheme and HMRC issued a number in response. It was the other way round.
The Disclosure of Tax Avoidance Schemes (DOTAS) regime is contained in of FA 2004. Under these rules, a promoter is generally required to disclose a notifiable arrangement to HMRC. Section 306(1) of FA 2004 sets a three-limb test. Arrangements are notifiable only if they (a) fall within a description prescribed by the Treasury by regulations (the descriptions practitioners call the hallmarks); (b) enable, or might be expected to enable, any person to obtain an advantage in relation to a tax prescribed for arrangements of that description; and (c) are such that the main benefit, or one of the main benefits, expected to arise from them is the obtaining of that advantage. In this case limb (b) was agreed and limb (c) was disputed by Property 118 alone, so the appeal turned on limb (a) (para 7). Once the arrangement has been disclosed, HMRC issues an SRN for identification and reporting purposes.
Since the amendments made by the Finance Act 2021 (FA 2021), HMRC has had a second and unilateral route. Under section 310D of FA 2004, if HMRC has reasonable grounds for suspecting that arrangements are notifiable, it can issue a notice warning that unless the recipient satisfies HMRC otherwise within the notice period, a reference number may be allocated anyway. If the recipient does not persuade HMRC, the case becomes what the statute calls a case under section 311(3) of FA 2004, and HMRC may then allocate a number under section 311(5) of FA 2004.
That distinction matters enormously. A number allocated this way reflects what HMRC suspects, not what anyone has admitted and not what any court has found. Parliament said as much: section 311(9) of FA 2004 provides that the allocation of a reference number is not to be regarded as constituting an indication by HMRC that the arrangements could, as a matter of law, result in any person obtaining a tax advantage. Section 311A(3) of FA 2004 makes clear that HMRC's duty to notify applies whether or not the notice under section 310D of FA2004 was ever issued to the person concerned, which is how advisers can find themselves inside a disclosure regime they were not warned about.
The appeal right, & what the FTT could do with it
Parliament provided a counterweight to this suspicion-based power. Section 311B of FA 2004 gives a person who has been notified of a suspicion-based reference number 30 days to appeal to the FTT. The grounds are narrow and specified: that HMRC did not act in accordance with section 310D of FA 2004 in issuing the notice; that HMRC did not act in accordance with section 311 in allocating the number; or that the arrangements are not in fact notifiable.
The FTT's powers are correspondingly narrow. Under section 311B(7) of FA 2004 it may affirm or cancel HMRC's decision, and nothing else. If it cancels, section 311B(8) of FA 2004 obliges HMRC to withdraw the reference number. There is no power to declare a structure effective, to determine a liability, or to bind HMRC on any substantive point. Section 311B(9) of FA 2004 confirms that bringing an appeal does not prevent the powers and duties in Part 7 from continuing to operate. That is the shape of what was won.
Two features of how this appeal was run matter to anyone reading across from it. First, it was common ground that HMRC had validly issued the SRNs as per the procedures under the section 310D of FA 2004 and section 311 of FA 2004, so the two procedural grounds were never in issue and the appeal was fought solely on the ground that the arrangements were not notifiable. That makes this the informative kind of cancellation rather than the technical kind. Second, on an appeal against the allocation of an SRN the burden of proof lies on the appellant, to the ordinary civil standard, as the FTT confirmed by reference to Greenwich Contracts Ltd v HMRC [2023] UKFTT 874 (TC). The appellants therefore had to displace all three descriptions on the evidence, and did.
Why the ground matters, not just the result
Section 311B(3) of FA 2004 offers three routes to the same outcome. A cancellation because HMRC mishandled the section 310D of FA 2004 notice is procedurally fatal but technically uninformative. A cancellation on the ground that the arrangements were not in fact notifiable engages the hallmarks themselves and is far more useful to advisers.
The Three Hallmarks in Issue
The descriptions prescribed by Treasury regulations are those falling within one of the specified categories set out in the Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2006. HMRC relied on three, and it is worth being precise about which applied to what. Description 5 in regulation 10, standardised tax products, was advanced against both SIS and CAR. Description 3 in regulation 8, premium fee, and description 9 in regulation 19, financial products, were advanced against CAR only.
Description 5 is worth setting out, because it shows why a tax saving is nowhere near enough on its own. Regulation 10 requires an informed observer, having studied the arrangements and all relevant circumstances, to conclude that four things are true together: the documentation is standardised or substantially standardised and its substance does not need tailoring to any material extent; anyone implementing must enter a specific transaction or series of transactions; those transactions are standardised or substantially standardised in form; and either the main purpose is to obtain a tax advantage or the arrangements would be unlikely to be entered into but for that expectation.
Every condition must be met. Fail any one and the description is not met, however substantial the tax saving. That is why the words "does not need to be tailored, to any material extent" carry so much weight: whether documentation genuinely had to be adapted to each landlord's lender, mortgage terms and capital position is a question of fact, and it is the sort of question that takes ten days of evidence to answer. On the evidence, the FTT found that the transaction documents were in substance standardised or substantially standardised, and that their substance did not need tailoring to any material extent to enable implementation, notwithstanding the considerable preparatory and advisory work undertaken for each client (paras 129–136). The appellants lost on that limb.
Two findings of general application
Two holdings reach well beyond these arrangements. The first is that the informed observer test does not import HMRC’s published DOTAS guidance as a matter of law, because guidance is not law (para 133). That disposed of what had been Cotswold Barristers’ central argument, and it is a reminder that a structure defended by reference to the wording of HMRC manuals rather than to the statutory text is defended on the wrong ground.
The second concerns the comparator. To decide whether the arrangements enabled a tax advantage, the FTT compared them not with staying unincorporated but with an economically similar incorporation carried out by refinancing the existing debt (para 150). On that comparison SIS did enable an advantage, in securing incorporation relief in full. The FTT also confirmed that there is no overriding requirement that arrangements involve tax avoidance before a description can bite (para 150(3)).
The test HMRC has to meet, not the test people assume
It is not enough that an arrangement reduces tax, uses professional documents, or has been used by more than one client. HMRC must show that the arrangements fall within a specific prescribed description and satisfy every connected condition in it. Losing a DOTAS appeal does not make HMRC wrong about the tax; winning one does not make the taxpayer right about it either.
Does the Property118 FTT Decision Mean Incorporation Is Now Safe?
No, the decision and Property118's own report is careful to say so. This is the single most important point in this article, and it is the point most likely to be lost in the retelling.
A useful comparison: cancelling an SRN is like a court removing a warning notice pinned to a building because the inspector could not show the building fell within the categories the notice regime covers. The notice comes down, and this time on the merits rather than on a technicality. Whether the building complies with the building regulations is a completely different inspection, and nobody has carried it out.
The FTT allowed the appeals on the basis that none, or not all, of the requirements for any of descriptions 3, 5 and 9 to apply were satisfied, and cancelled HMRC’s decision to issue the SRNs under section 311B(7). The table below separates what that resolves from what it does not.
Settled by this appeal | Not touched by this appeal |
|---|---|
Whether SIS and CAR fell within DOTAS descriptions 3, 5 or 9 on the evidence before the FTT | Whether any individual landlord qualifies for incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) |
Whether HMRC’s decisions to allocate the SRNs could stand | Whether an open enquiry, closure notice or discovery assessment is correct |
Whether the reference numbers must be withdrawn under section 311B(8) of FA 2004 | Whether Extra-Statutory Concession D32 is available where existing borrowing is refinanced |
That on the evidence before the FTT, HMRC could not establish any of the three descriptions it had relied on | Whether the pre-incorporation business was in fact carried on in partnership, on which the SDLT analysis depends |
The finding that cuts against the headline
Two tests sit close together and pull in different directions. Section 306(1)(c) asks whether obtaining a tax advantage is the main benefit or one of the main benefits expected to arise. At paragraph [186], the Tribunal rejected Property118’s argument on that limb and found that at least some anticipated tax advantages were main benefits. Separately, for Description 5 under regulation 10(2)(d), it found that obtaining tax advantages could be a main purpose, but was not the main purpose, of SIS or CAR.
So, the arrangements were held to produce main tax benefits, and still to fall outside DOTAS. That is a coherent statutory result, and it is the opposite of a finding that these were purely commercial transactions.There is a further limit worth naming. Section 311B(9) of FA 2004 makes clear that bringing a DOTAS appeal does not suspend the powers and duties in Part 7. The regimes run in parallel, which is precisely why a landlord can have a good DOTAS outcome and an unresolved enquiry at the same time.
A FTT decision also binds nobody else. It is not a precedent in the way an Upper Tribunal or Court of Appeal decision is, it is confined to the arrangements and evidence before that FTT, and HMRC may seek permission to appeal. Anyone treating it as a general licence is reading more into it than it can carry.
The FTT’s Findings
The FTT’s findings about how three descriptions apply to two structures on one body of evidence, reached with the burden on the appellants. They are not a template. A different fee model, a different set of documents, or a weaker evidential record on why clients acted could produce a different answer on the same law.
What Did the Reference Numbers Actually Oblige You and Your Clients to Do?
This is where the reference numbers had teeth, and where advisers carry personal exposure. Three duties are worth isolating.
Section 312ZA of FA 2004 applies where a person is providing, or has provided, services to another person in connection with the arrangements. That wording is wide: it is not limited to the promoter. Any accountant, solicitor or adviser notified has 30 days from notification to provide the client with the prescribed information about it. The maximum penalty under section 315 of FA 2004 is £5,000. Where the failure continues after that penalty has been imposed, a further daily penalty accrues under section 315A of FA 2004 at the applicable rate defined in section 315(2) of FA 2004.
Section 313 of FA 2004 imposes a separate duty on any person who is a party to the arrangements, in other words the client, to provide HMRC with prescribed information about the number and about when they obtain or expect to obtain the advantage. Regulations may require this to be included in a return. Penalties escalate with repetition: a maximum of £5,000 in the ordinary case, £7,500 where there has been one other failure in the preceding 36 months, and £10,000 where there have been two or more. Section 315A of FA 2004 does not apply to this duty, so no further daily penalty accrues.
Section 311C of FA 2004 allows HMRC to require information and documents from suspected promoters and suppliers, ordinarily within 10 working days. Failure carries a maximum of £600 per day, rising to £5,000 per day after an order about notifiability has been made, or up to £1 million where an authorised officer considers the standard amount inappropriately low.
Worked Example
Failure | Provision | Prompted Disclosure |
|---|---|---|
Firm fails to notify 20 clients of the number within 30 days | s.312ZA(2) | Up to £5,000 each — up to £100,000 |
Client's first failure to report the number | s.313(1) | Up to £5,000 |
Client's second failure within 36 months | s.313(1) | Up to £7,500 |
Client's third failure within 36 months | s.313(1) | Up to £10,000 |
Firm fails to answer a s.311C information notice for 60 days | s.311C | Up to £36,000 at £600 per day |
On these assumptions the single client's exposure is up to £22,500 and the firm's is up to £136,000, none of which turns on whether the arrangements saved any tax. Contrast the position once HMRC withdraws the number: the duties in sections 312ZA of FA 2004 and 313 of FA 2004 cease from the date specified in HMRC's notice, and no further reporting is required.
These are maximum amounts, not automatic charges, and the figures are illustrative. Actual exposure depends on the number of clients, the periods involved, prior failures and the view taken of any reasonable excuse.What Happens to the Stop Notice & to Open Enquiries?
Stop notices sit in Part 5 of the Finance Act 2014 (FA 2014), the promoters regime. A stop notice requires the recipient to stop promoting the arrangements described in it. Under section 236A of FA 2014, an authorised officer may specify a description of arrangements in a stop notice only where condition A and one of conditions B and C are met, or conditions B and D are met.
Condition A can be satisfied because the arrangements would be the same or similar in form or effect to arrangements to which a reference number has been allocated under section 311 of FA 2004. Where that is how condition A was met, and the number is later withdrawn, section 236G of FA 2014 operates automatically: the stop notice ceases to have effect in relation to every person subject to it from the time the number was withdrawn, and HMRC must give notice stating the reason. So the stop notice does not need to be separately withdrawn, and HMRC’s notice records the position rather than creating it.
That is not the end of the analysis, for three reasons. Condition A has four limbs, only one of which involves a reference number, so a notice may rest on a loan charge, a follower notice or a prescribed description instead. Condition C only operates where condition A was met through an allocation, and requires something more, namely non-compliance with an information requirement or an application to the Tribunal. And a notice resting on conditions B and D does not depend on a reference number at all. Withdrawal of the number removes the foundation only where condition A was met as a result of the allocation, which is the trigger section 236G(1)(a) of FA 2014 actually uses. Whether a stop notice truly falls away therefore depends on which conditions the officer relied on when giving it.
This is not academic. A person subject to a stop notice must file quarterly returns under section 236C of FA 2014 naming their relevant clients by name and address, together with unique taxpayer references and National Insurance numbers where held, for three years. Because that duty applies to a person subject to a stop notice, it should fall away once the notice ceases to have effect under section 236G of FA 2014. Section 236C(8) of FA 2014 is the mechanism by which an authorised officer confirms a cessation date, and the prudent course is to obtain that confirmation in writing before stopping returns.
Enquiries & discovery assessments continue on their own track
If you have an open enquiry, a closure notice or a discovery assessment, the DOTAS outcome does not determine it. Those are appeals about your tax liability, decided on your facts, under different provisions. Nothing in the decision resolves them, and the FTT was not asked to.
The ESC D32 point to watch
One passage in the decision deserves more attention than the result. Incorporation relief under section 162 of TCGA 1992 is restricted where liabilities taken over by the company count as consideration, and ESC D32 disapplies that treatment for business liabilities; HMRC explains the concession in its Capital Gains Manual at CG65745. The FTT recorded that, in answer to a freedom of information request from the appellants, HMRC confirmed it proposes to clarify in an updated CG65745 that a refinancing does not fall within ESC D32. Correspondence between the Chartered Institute of Taxation (CIOT) and HMRC showing professional concern on the point was in evidence (para 23(2)). HMRC revised CG65745 itself on 21 August 2026, as part of a wider refresh of the incorporation relief chapter, but that amendment retitled the page and reworked its statutory references without altering the substance of the concession. As of the current version, the page still states ESC D32 with no refinancing carve-out, and the clarification HMRC told the FTT it proposed remains unpublished. Any landlord who incorporated by refinancing existing debt, and any adviser who signed off that treatment, should read that paragraph rather than the headline.
The practical position for individual landlords is largely unchanged in substance and improved in atmosphere.
Frequently Asked Questions
That HMRC's decisions to allocate the SRN could not stand in light of the particular arrangements under consideration.
No. Where a SRN is allocated, it reflects HMRC's reasonable suspicion that arrangements are notifiable. It creates reporting obligations and signals HMRC's concern. It is not a finding that an arrangement is unlawful or that a tax treatment fails.
If you were notified of the number and had provided services in connection with the arrangements, yes. Section 312ZA of FA 2004 required you to provide the client with the prescribed information within 30 days of being notified, with a maximum penalty of £5,000. The duty is not limited to the promoter.
Not on the basis of press coverage. The operative step is HMRC's withdrawal of the number and any notice specifying the date from which duties cease. Obtain that confirmation in writing first.
Where condition A in section 236A of FA 2014 was met as a result of the allocation of a reference number, withdrawal of that number causes the stop notice to cease automatically under section 236G of FA 2014. Condition C is not a separate route: it applies only where condition A was met through an allocation. A notice founded on Conditions B and D does not depend on a reference number. Establish which applied, and obtain the section 236C(8) of FA 2014 notice before stopping quarterly returns.
HMRC may seek permission to appeal to the Upper Tribunal on a point of law.
Conclusion
For advisers the practical effect of the Property118 tribunal decision is narrower and more administrative than the headline suggests. A label that made firms decline instructions is coming off. The judgment does not finally determine any individual client’s tax liabilities, open enquiry or assessment. It nevertheless changes the relevant factual and evidential landscape by making findings, on the evidence before the Tribunal, about user motivations, commercial purpose, the nature of the fees and whether the CAR financing steps were unusual or contrived. The relevance of those findings to any individual case will depend upon that case’s own facts and evidence.
If you are reading this because a label is coming off arrangements you entered into, the useful next move is not to relax but to separate the questions. The Property118 tribunal decision resolved whether HMRC could treat the arrangements as notifiable. It does not determine whether a particular arrangement achieves its intended tax outcome, or whether any ongoing HMRC enquiry will ultimately succeed.
- Title Splitting: The Tax Implications Solicitors Don’t Cover (2026) - 21 August 2026
- Property 118 Ltd and Cotswold Barristers Ltd v HMRC [2026] UKFTT 1111 (TC) - 8 August 2026
- Stamp Duty on New Builds: What Buyers Need to Know - 1 April 2026
