Property 118 [2026] UKFTT 1111: Why Cancelling the DOTAS Numbers Does Not Clear Landlord Incorporations — and What Every CFO Must Separate on Purpose, s.162 and Circular Funding

The First-tier Tribunal has handed landlord promoters a narrow win that is already being sold as something much bigger. In Property 118 Limited and Cotswold Barristers Limited v HMRC [2026] UKFTT 01111 (TC), released 31 July 2026 after a ten-day hearing in February, Judge Harriet Morgan and Member Jane Shillaker allowed the appeals and cancelled the DOTAS scheme reference numbers HMRC had allocated to two property-incorporation products: the Substantial Incorporation Structure (SIS) and the Capital Account Restructure (CAR).

If you are a CFO, PE finance lead, family-office controller or board member sitting near residential property companies, read the judgment before you read the marketing. The Tribunal decided one question only: whether those arrangements were “notifiable arrangements” under the Disclosure of Tax Avoidance Schemes (DOTAS) rules in Part 7 FA 2004. It did not decide that incorporation relief works, that section 24 is beaten, that SDLT is clean, or that any client’s self-assessment is safe. Dan Neidle’s analysis for Tax Policy Associates put it bluntly: a tribunal win that changes nothing for landlords still under enquiry. Landlord Zone struck the same cautionary note for the sector.

What HMRC put on the table

HMRC notified SRNs on 9 February 2024 under section 311 FA 2004 after concluding the promoters had not disclosed. The live hallmarks were:

• Description 5 — standardised tax products (reg 10 of the 2006 hallmark regulations).
• Description 3 — premium fee, pressed on CAR.
• Description 9 — financial products with contrived or abnormal steps, pressed on CAR’s same-day bridging loan.

Under section 306 FA 2004, arrangements are notifiable only if they fall within a prescribed description, enable a prescribed tax advantage, and have obtaining that advantage as a main benefit. DOTAS is an early-warning and user-reporting machine. An SRN is not a determination that the planning fails. HMRC’s guidance is explicit that issuing an SRN is not approval — and cancelling an SRN is not a green light on technical merit. See the DOTAS guidance.

What the products actually did

Both products targeted buy-to-let partnerships, typically spouses, seeking corporate wrapping after section 24 Finance (No. 2) Act 2015 restricted finance-cost relief for individuals. Companies still get a full deduction; individuals get a basic-rate credit — which is why incorporation exploded, as the OTS property income work mapped.

SIS packaged four same-day documents: sale of the partnership business to NewCo for shares; a declaration of trust so legal title and mortgages stayed with the individuals while beneficial ownership moved; an agency agreement for rent and expenses; and a deferred property sale contract. The pitch was incorporation without immediate legal-title transfer or refinance.

CAR bolted a same-day bridging loan on top: Users borrowed, lent the same sum to NewCo, and NewCo repaid the bridge the same day (typically 1% lender + 1% “brokerage”). Economically everyone ended where they started — except NewCo owed director loans that could, if the analysis held, be repaid without income tax or NIC. That circularity is what HMRC branded contrived under description 9.

Claimed tax effects the Tribunal recorded as common ground included escaping section 24, lower corporate rates on retained profits, and — if it worked — full section 162 TCGA 1992 incorporation relief, with partnership SDLT mechanics under Schedule 15 FA 2003 in the background. Ross Martin’s note on incorporation relief remains the board-level primer on why s.162 fails when non-share consideration contaminates the exchange.

Where the appellants lost — and where they won

This was not a clean walkover. The Tribunal accepted a lot of HMRC’s framing:

• Documents were standardised or substantially standardised templates — description 5’s packaging tests largely landed.
• Cotswold Barristers’ attempt to treat HMRC guidance as controlling law failed. Guidance is not the statute.
• Tax advantages were among the main benefits for section 306(1)(c).
• Avoiding section 24 and securing incorporation relief were a main purpose, not a side effect.

The appellants still won, because description 5’s purpose limb is tougher than section 306’s main-benefit limb. Regulation 10(2)(d) asks whether the main purpose is a tax advantage, or whether the arrangements would be unlikely to be entered into but for that expectation. The Tribunal held that informed observers could not reach either conclusion. Users had dual main drivers: tax structuring and avoiding legal-title transfer/refinance for commercial reasons. Tax was a main purpose; it was not the main purpose. The “but for” test failed for “essentially the same reasons” — a paragraph Tax Policy Associates has already flagged as appeal-vulnerable.

Description 3 failed because the 1% bridge and brokerage fees were treated as ordinary finance/arrangement fees, not premium fees “to a significant extent attributable” to the tax advantage. Description 9 failed because the Tribunal refused to call short-term third-party funding plus director-loan capitalisation “contrived or abnormal” when compared with ordinary pre-incorporation capital extraction.

Disposition, paragraph 187: appeals allowed; none of descriptions 3, 5 and 9 fully made out; SRNs cancelled under section 311B(7). Permission to appeal window: 56 days under the FTT Tax rules.

What this does not do for clients

Keep four workstreams outside this judgment:

1. Client enquiries and assessments — HMRC has been opening enquiries into users. Lead-case machinery (ARTG8554) is the likely endgame, not a collective DOTAS victory parade.
2. Section 162 incorporation relief — still fact-specific. Beneficial-only transfers, deferred legal completion, mortgages left with individuals, and circular CAR funding all sit in the cross-hairs. A cancelled SRN does not prove IR.
3. Document defects and rectification — drafting-error commentary since 2023 has not gone away. Private-law fix work sits beside tax.
4. Stop notices and promoter behaviour — promotion restrictions should be expected to track the DOTAS appeal path, not client technicals.

If promoters resume selling on the back of the FTT result, the CFO question is not “is DOTAS dead?” It is “can I defend s.162, section 24 positioning, SDLT, interest deductibility and lender consent on this file with regulated advisers and a clean board minute?”

The real DOTAS lesson for finance leaders

For groups that design or repeatedly implement planning — property propcos, capital-allowance packages, financing wrappers — Property 118 is a drafting and evidence case as much as a landlord case.

• “Main benefit” is not “the main purpose.” Section 306(1)(c) is easier for HMRC than reg 10(2)(d). Winning the second after losing ground on the first is a thin ledge.
• Standardisation is a hallmark risk, not a delivery convenience. Template packs that only change names and schedules are exactly what description 5 catches.
• Circular same-day money still looks terrible on a slide. The Tribunal declined to call CAR’s bridge contrived. Commentators — and, if HMRC appeals, potentially the Upper Tribunal — may not be so gentle.
• Witness choreography is a litigation risk. User statements steered toward “commercial, not tax” still got a careful reading after cross-examination.
• Guidance is not law. Internal “HMRC manual says…” memos are starting points, not opinions.

CFO controls cut — this week

1. Inventory landlord, propco or family-investment incorporations since section 24 fully bit (2020/21 onwards). Flag trust-of-land / deferred-completion / circular-loan variants, branded or not.
2. Separate the questions on each file: DOTAS/promoter exposure; s.162 IR; SDLT partnership rules; income-tax/NIC extraction; lender consent; IHT/succession share classes. Do not collapse those tabs into one green cell because an SRN was cancelled.
3. Pull the contemporaneous file — advice letters, tax computations, mortgage correspondence, partner minutes, and what was said about section 24 versus refinance friction. Tax-led marketing is exhibit A if purpose is re-litigated.
4. Check disclosure posture — if an SRN was issued or notified, confirm AAG reporting under the DOTAS forms suite. Cancellation does not rewrite historic user obligations.
5. Assume appeal risk — HMRC has 56 days to seek permission. Do not refinance, distribute or warranty a portfolio exit on FTT alone. For any new incorporation, use regulated advice and a written risks memo that faces this judgment’s limits.

Bottom line

Property 118 is a genuine HMRC setback on DOTAS hallmarks — likely one of the first substantive standardised-product defeats rather than a pure procedure loss. It is also a case study in how little a disclosure win buys the people who used the product. The Tribunal cancelled SRNs because tax was not the main purpose and the bridge was not, in its view, contrived. It did not bless the planning, clear client enquiries, or convert an unregulated sales machine into a safe harbour.

If your board pack has a line that says “FTT win — risk closed,” rewrite the line. The open risks are still s.162, section 24 economics, SDLT, extraction, lenders and whatever the Upper Tribunal does next. Bookmark the full judgment, the 2006 hallmark regulations, s.306, s.162, HMRC’s DOTAS overview, and the critical reads from Tax Policy Associates and Landlord Zone. Then open the actual client files.

General information for finance leaders, not advice on any specific structure or enquiry. Take formal advice on live cases.