Property 118 Limited & Anor v The Commissioners for HMRC

Appendix

Part F – Evidence and credibility

Section 1 – evidence on credibility

189. Mrs Fracchiolla said that in her view, aspects of the witness statements have been written to emphasise what is said to be the commercial motivation of using the scheme such as deferring costs of refinancing, succession planning etc. She then referred to an article which was published on the Tax Policy Associates website (www.taxpolicy.org.uk) on the 25 October 2024 entitled: “Witness tampering from tax avoidance firm Property118?”. According to the article, P118 sent their clients a message on the 18 September 2024. An extract of the message set out in the article shows that P118 asked for volunteers to provide witness statements. We refer to this as “the witness request”.

190. She said that the article was on the Tax Policy Associates website and somebody within HMRC had drawn her attention to it. She knows Mr Dan Neidle uses that website. She confirmed she has not been in contact with him. She is aware he has written articles on the website about P118. She said she was not aware he is, so counsel asserted, something of a sensationalist in his writings. She accepted that the article contains an extract only and the tribunal cannot tell from it what the full document might be or what further wording there may be because it appears Mr Neidle has edited it in some way.

191. In the witness request P118 asks “for your support in a very important matter” and states: “As you may be aware, HMRC is currently challenging the SIS structure, claiming that it is driven by tax motivations rather than its clear commercial benefits” and asked people to volunteer to give evidence:

“The Strategy Behind the Witness Statements: In these witness statements, we want to highlight that the decision to use SIS and CAR was primarily based on commercial practicality - not on tax advantages.”

192. The witness request then said: “The statements will cover” and listed three matters (a) , “Why SIS was chosen over other incorporation methods.”, (b) “how SIS allowed you or your clients to manage liabilities - avoid the costs and hassle ... and preserve flexibility” and (c) “an acknowledgment that while tax benefits are a factor, they were not the main motivation - the focus was on achieving the best commercial outcome”.

193. Mr Alexander was questioned about this:

(1) He said it is taken completely out of context in the article. It was produced shortly after HMRC provided its statements of case in these proceedings at the end of August 2024. He said they were then looking for witnesses. He thought this message was posted on a secure forum.

(2) He agreed that he/P118 was asking for volunteers to provide statements explaining the commercial practicality of the arrangements. He said that the reason that people use SIS and CAR was not that it changed the tax outcomes and incorporation in any way, it was to avoid refinancing. In his view actually that was the sole benefit of using SIS or CAR, in that it was just a financing outcome that changed, not the tax outcome that changed.

(3) He did not accept that in the witness request and, in particular, in the section listing three matters he/P118 were essentially telling potential witnesses what they should say in their witness statements. He said this was telling them what they did but he could see how it could be read as counsel put it but he did not see it that way.

(4) He said that further text shown in the article under a heading: “Benefits of Substantial Incorporation Structure Over Refinancing or Novation” was not part of the same message; it is a screenshot from P118’s secure forum, and he/P118 have no idea how that got leaked. That is accessible only by clients of P118 of whom there are 400 or 500. There are three million visitors to P118’s website every month. He said that here they were trying to explain why a person should use an indemnity versus novation and noted that a lot of lenders do not offer novation anymore.

(5) He did not accept that with the list of 23 benefits in the extract, he was essentially telling potential witnesses what points they should include in their witness statements:

“I think we’re reinforcing what we told them in our advice in the first place. It’s been presented that way by Mr Neidle, but no, that wasn’t the case. This was a completely separate discussion on our members’ secure forum…We would want to remind all our clients why they chose a specific route, regardless of this…As I say, the two are different things: one, communication, another, blog, on a secure members forum, conflated to make it look to make us look bad.”

(6) It was put to him that, in context, it is absolutely clear that this list of 23 benefits is designed to identify to potential witnesses the points they might want to include in their witness statements. He said this list has been published in lots of places, not just on their secure members forum. He was pretty sure, bearing in mind that their mission is to facilitate the sharing of best practice, that this is precisely the kind of thing that would have also been on their open forum.

194. He was taken to an extract also included in the article from what seems to be a chat between a potential witness and his response. He said: “Again, this has been twisted by Mr Neidle.”:

(1) In the extract he said “Perfect! You could add all of those points into the template we have 95% prepared for you.” He said that they had a template of the questions, or the points, that they would like witnesses to comment on. It was nothing more than that. So they had a template that had 95% of the questions they wanted the clients to answer. He thought the questions were set out in non-leading terms. It was put to him that the clear impression given by his answer is that there is a draft witness statement, which is 95% ready to go. He said: “No. I think that’s the way it’s been twisted and presented to make me look dishonest. But that’s absolutely not what was the case”. In the extract the client was then advised to email someone at P118 to request the template. He confirmed that he appreciates that it is problematic, at least, for a litigant to tell a witness what he wants them to say on disputed points. In the next message he said in response to another question from a user: “Thank you, much appreciated…Similar is good, identical is not. Please use your own words.” He said he thinks that supports what he was saying about the questions they templated, but “we don’t want to put words in [potential witnesses’] mouth and give them the answers. We want to give them the questions.”

(2) He did not accept that, viewed in context, it is absolutely clear that he was making clear what he wanted witnesses to say, but he was then telling them to make sure they uses their own words and not to make the statements look too similar. It was put to him that leaving aside the various ethical and professional issues which this approach gives rise to, it makes it very difficult for the tribunal to be confident that evidence given by witnesses who used the arrangements is really their own evidence, as opposed to the evidence he would like them to give. He said he thought the tribunal will make that decision when it sees the witnesses and they are cross-examined.

195. In re-examination by Mr Akin, Mr Alexander confirmed that in the correspondence set out in the article, he did not intend to ask witnesses to give specific answers or to give false evidence, he did not ask them not to discuss the taxation benefits of the transactions and did not intend in any way to mislead the tribunal as regards their evidence.

196. The individual witnesses were questioned on matters relating to the reliability of their evidence. They were asked about how they had come to give evidence, how their witness statements were prepared, and whether their personal tax position in respect of incorporation under SIS and CAR was/is subject to investigation by HMRC or they have been subject to any assessment to tax such as CGT on the basis IR does not apply. The evidence of most of the witnesses was that they were the subject of such an investigation and/or an assessment to tax and, on their collective evidence, most of these investigations remained open. Except where noted below, all of the witnesses who were asked the question confirmed that they understand that these proceedings are entirely separate from any such investigation or other action taken by HMRC in relation to their own tax position in respect of the transactions implemented under SIS and/or CAR and that the outcome of these proceedings has no bearing on any such personal tax issues.

197. We note that in re-examination Mr Akin asked many of the individual witnesses if they stood by the evidence in their witness statements and those questioned each said that they did.

Evidence of those who advised Users

198. Mr Malcolm Jones said that he was asked by Mr Neil Patterson to give evidence. He phoned Mr Jones and asked if he would be prepared to do a statement regarding the bridging finance aspect. It was not suggested to him what his statement should say. We note that Mr Jones statement has some considerable similarity to that of Mr Kumar. He was not questioned about that; Mr Kumar was questioned about it.

199. Mr Jonathon Rose said that he was asked by P118 to give evidence about his dealings with clients of P118 who he dealt with in his role as a solicitor. He was asked about his understanding of the documentation and why P118’s clients had come to his firm. He did not accept that somebody had clearly asked him to identify what he sees as the commercial benefits of the arrangements. There was a general discussion based upon his knowledge of the hundred or more cases that he had dealt with, as to why particular clients had come to P118 and him. Clients came to him after the event, once the relevant agreements had been entered into, and his job was to sort out the issues arising after the incorporation in terms of sorting out legal title and refinancing.

200. Mr Simon Close gave the following evidence:

(1) He was asked by somebody at P118 initially to give evidence in this case. They did not specifically tell him what ought to be included in his witness statement. He was hesitant about the process for preparing his statement seeming not to remember clearly. He initially said (a) he is pretty sure he asked for some direction as to what the content of the statement should be, and then he drafted it thereafter, (b) he was not provided with a template, (c) the statement was his own work and was drafted by him, (d) he emailed a draft and may have got some feedback as to areas that should be included. He is not entirely certain about the process, but thinks that was what happened, and (e) he did not think he was told to emphasise the commercial benefits of SIS and CAR in his statement, but these might have been included in the list of subject matters to cover in the statement.

(2) It was then put to him that there is a great deal of similarity between his statement and that of another witness, Mr Revill, who Mr Close confirmed he does not know (see the evidence from the statements set out below). When asked again whether his statement is his own work, he said “from memory, yes… I did bounce the draft statement back, I think, and I’m not sure where the actual wording that I used came from, whether it was something on the, perhaps on the [P118] website, I’m not sure…it’s very similar; I accept that”. He said, in effect, that he did not copy Mr Revill but it is possible Mr Revill copied him or they both copied from a template and he might have asked about the sort of issues to be covered. He accepted that the chances of him and Mr Revill coming up with almost identical formulations set out in exactly the same order, is infinitesimally small.

(3) He accepted, in effect, that in terms of the structure of these statements and the points covered, and much if not all of the language, the similarities are extremely close.

201. Mr Revill thought that around September or October 2024 he was approached by P118 regarding making a witness statement. He then drafted a statement and sent it to them. He had some input to make sure his statement was clear, relevant and logical. He thought comments came from a barrister on the structure of the statement and whether things were legally relevant or not. In drafting his statement, he looked back at the conference notes from P118 meetings, the online portal and the facts of his client’s case. He agreed that there are very great similarities between the structure, the substance, and the actual wording of his statement and that of Mr Close. He said that was likely to be because they were using the same source of information and the same barrister was assisting with preparation. He said that the actual factual elements in witness statements are all his own. Although he drafted the first draft himself and sent it across, and then it was commented on, which may have led to his language changing based on it being presented in the most logical and relevant way.

202. Ms Helen O’Dell gave the following evidence:

(1) She was approached by her client, Mr Price, and asked if she would produce a witness statement for him. She is now aware that these proceedings do not have a bearing on Mr Price’s tax position in respect of the arrangements. Her statement was all based on her recollections of what happened at the time although it was some time back. So they talked about what happened and drafted up the statement. She wrote parts of it herself and it was reviewed by Mr Price. She does not know whether anybody else looked at it as well. She cannot remember. She did not think that anyone gave her wording for it statement or told her what points it should be making

(2) She explained the similar terms used in and structure of her statement to other witness statements on the basis that it had to be in a particular format, such that there are going to be similarities in the way things are worded, and what is said, and the way it has been put together and “obviously there’s going to be a certain amount of similarity between what everybody is saying, because just the way it’s happened”.

203. Mr Kumar gave the following evidence:

(1) He was contacted in November by one of his clients, Mr Blair, who he completed mortgages for historically and who has gone through the process of incorporation via P118. He then heard from Mr Patterson on 3 July 2025 setting out some of the details with regards to comments or statements he could make on the cost of bridging finance for commercial bridging and the bridging finance that was organised by P118. He was provided with a copy of a witness statement from Mr Jones on 28 July 2025. He accepted that the two statements are in many respects extremely similar and certain paragraphs are identical. He said that the information was looked at, referred back to Mr Patterson and also to Mr Akin to review. So there was a process - back and forth - with the information and some agreement with counsel as to what would be appropriate and effectively what was being asked for in terms of his experience and background. But it was agreed that using Mr Jones as a basis made a lot of sense.

(2) He did not accept that at least significant parts of his statement were simply copied and pasted from Mr Jones’ statement. He said, in effect, that the information was looked at and it was agreed, with reference to a barrister, that it was the correct way to present the information. He accepted that he had essentially started with Mr Jones’s draft and then perhaps added some bits and pieces. He said, in effect, that it had gone back to the barrister to agree that was the right way to present the information but the thinking and statements given in it are his own impressions and experience. He accepts that they used predominantly the draft statement that was there because it was guided but he thought that was the right thing to do.

204. Mr Pateman was not questioned on these topics.

Evidence of Users

205. Mr and Mrs Harris gave the following evidence:

(1) They had made a joint witness statement which they wrote together. They both separately explained that (a) they were so pleased with the way the incorporation had gone and how it fitted in with all of their plans, that Mrs Harris chose to speak to Mr Alexander around 10 June 2025 to say thank you and he asked if they would like to make a statement, (b) they were aware of P118 asking for volunteers to give evidence before Mrs Harris had this conversation.

(2) Mr Harris confirmed that no-one from P118 or CB played any role in drafting the statement, for example, by telling him what it should say or what points it should cover. This is their own words. Mrs Harris was clear that Mr Alexander did not explain to her what topics the witness statement ought to cover. She said it was just a product of the fact that they went back through the history of why they incorporated, what they had done before, and the fact that they wanted their children to be involved (as set out below); it just covers the things that they discussed when they had the conversation. She accepted “to some degree” that someone must have explained to her that there are various points which matter in this case, and that led her to draft a statement covering those points. She said that there was a lot of reading on the secure forum, and lots of discussions between other people who had incorporated, there were bits and pieces that were in the general things on the P118 website which she was aware of. So, it was obvious to them what was being discussed.

(3) The list of 23 benefits is familiar to Mrs Harris but she did not accept that this made quite clear to her what P118 wanted her witness statement to say. She said, in effect, that it was clear that those of the 23 benefits which are applicable to them needed to be in their statement. She accepted that P118 gave a kind of menu but said that was not necessarily what they put in their statement; they put in it what they felt was a commercial reason for them incorporating, their background of it, really.

206. Mr Birch said that P118 invited people to give a statement about their particular circumstances and to expand the reasons for him and his wife using the structure and for incorporating generally. He was not asked to say particular things in his witness statement. His own words are in it. He was not provided with a template for it or draft wording. He could not remember if it was the witness request he had seen but it was something of that kind. He was familiar with the list of 23 benefits. He has not discussed his evidence with P118 since he prepared it. He was firm that he absolutely remembered the matters set out in his statement when counsel queried his recall due to the passage of time. He said the incorporation of his business was an important and large thing to him. In re-examination he confirmed that he used his own knowledge, principally, to write it the statement. He did as much background as he could, as accurately as he could. He did not particularly use any reference material.

207. Mr Yew Kei Ngan said the following:

(1) He received an email appealing for witnesses. He was not asked to say particular things in it and no template or draft wording was provided although there were “questions, a sort of guide, like what to think about to put in, but definitely not what to put in”. He was not sure if he received the witness request. There was definitely an email addressed to him and his brother. He did not think the list of 23 benefits looked familiar but he cannot recall this kind of detail: “All I know is sort of like the substance of things, and it definitely didn’t say anything like what you should be writing about”.

(2) He accepted that certain parts of his statement are very similar to those in the statement of Mr Dalvinder Bhullar and there is a considerable similarity between the structure and phrasing of his statement and Mr Bhullar’s statement in parts. He said that he does not agree with copying. He discussed this with his brother; they want to give their side of the story. He had a chat with Mr Caravello. The statement reflects this chat and the similarities donot “negate the fact that we agree with it, that this is what happened. This is 100% our side of what we want to say…All I know is that this is what we said, we agree, and then this is the statement that I want to say and I agree with it. That’s why I signed my name to it.”

208. Mr Parker gave the following evidence:

(1) Ms Yvonne Patterson sent him an email asking whether he would give evidence. Then he was telephoned by Mr Caravello. He was not asked to say particular things in his witness statement. He had a few conversations with Mr Caravello initially just to explain, he then asked him to draft something about his experience, then he telephoned and they discussed the draft. He gave Mr Caravello their general personal circumstance regarding incorporation because it was the first time he had spoken to him and they came up with the statement between them. Mr Caravello did have some input into how it was detailed and set out and some of the things in it (such as the reference to ESC D32). They were not significant amendments. He was not provided with a list of points to make in his statement. It was not explained to him that it was important to emphasise or that he should highlight the commercial reasons for entering the arrangements, as opposed, to tax reasons. He said that the commercial reasons “are always our significant reason for incorporating anyway. So I didn’t need anybody to tell us or emphasise one side of our reasons for incorporation.” They had wanted to incorporate for some time prior to 2021. So he did not need it explained why they wanted incorporation.

(2) He confirmed that he had not received the witness request and had not seen it until the hearing. He was asked if the points in the request were the kind of points communicated to him either in the email or by Mr Caravello on the telephone. He said that such points were discussed but they were not emphasised, and they certainly were not written as set out there. There was nothing in the emails between him and Mr Caravello that had any sort of wording as described there in the witness request. In their discussion they did come up with some headings, or some of the ways it was laid out. They had a lengthy conversation, and then various emails passed between them and the witness statement evolved from those discussions and emails. He was not given a format to follow.

(3) He accepted, in effect, that there is similarity in the wording of his statement and the wording of the points made in the list of 23 benefits. He said he had not seen them before but accepted the similarities and suggested that must have come from the discussions he had with Mr Caravello.

(4) He did not accept that someone was, in one way or another, essentially, giving him points to set out in his witness evidence. It is coincidence because he had never seen the witness request, until this morning – but not a total coincidence as he was talking to somebody from P118 when the witness statement was being produced, but he and his wife produced it. Others could influence how he produced the witness statement, but they did not influence what he put in it. He realises the importance of emphasising the commercial reasons, but as he and his wife are concerned, because a commercial reason was their main reason.

(5) He was shown the witness statement from Mr Dominguez which contained very similar wording regarding succession planning. He said that in discussions he had probably said something like “Our overriding aim was to pass” the business to the children, and Mr Caravello probably came back and reworded it as they discussed things. He said “it absolutely was my independent view and witness statement, but it was produced in conjunction with somebody from P118”. He confirmed he hadnot discussed his evidence with anyone at P118 since he prepared his witness statement.

209. Mr Greenland said that in 2024, either P118 contacted him or he saw something on the P118 forum. He sent a first draft and needed some help with distinguishing between incorporation in general and SIS specifically; they said that for the statement they needed him to distinguish them. So there was a process then between sometime in autumn of 2024 and June 2025; there was some back and forth in drafting. There were some words suggested from them and certainly some restructuring and renumbering of paragraphs, at each stage to make sure it still tells the same story, and then some more detailed questions at some stage from Mr Akin, and some of his responses were fed into his statement as well. Then finally in June 2025, they checked with him whether he was still happy with it, and he signed it off.

210. Mr Carlos Dominguez gave the following evidence:

(1) He was asked if he wanted to make a witness statement by email, he thought personally but also he saw the witness request. P118 gave him information about his decision to incorporate made about seven years ago, so a lot of technical stuff, but in reality they knew his situation and why he and his wife wanted to incorporate. They gave him an update on the information, but he wrote the statement in his words and they structured it together. Obviously, they know the information, the technical details about SIS to make it correct for this particular hearing. The words were his and they agreed that.

(2) He confirmed that he was not asked to say particular things in his statement or provided with points to make in it. He emphasised that the technical details of information were laid out only to make his statement relevant, so it was correct. It was prepared in a discussion, mainly. He said that it was a balanced approach but it was not a “copy and paste”. He put his information down, there may have been some technical information which he may have written incorrectly, and so they set out the information that was required as the technical details. He had not discussed his evidence with any one at P118 since he signed his witness statement.

(3) He accepted that his statement includes some of the same wording as is in the statement of Mr Parker who he confirmed that he does not know. He said that they had all followed a path which is very similar, so he is not surprised that a lot of things coincide. He disputed that the similarities between these and other witness statements suggests that there was a very closely controlled process by which they were drafted, and that in those circumstances it is difficult for the tribunal to have confidence that this is really his own evidence. He said, in effect, that it reflects what happened and it is true there may well be similarities because they all did the same thing. But:

“nobody put words in my mouth. I’m here because I feel strongly about that process. Yes, but it doesn’t change the facts on the ground, which is the long-term business planning because this was my business for all my life, because we did not, were not intending to sell. This is my pension and my wife’s pension. So we were in a situation where we had to move along and look and think about medium and very long-term planning, and this worked very neatly for that particular process.”

211. Mr Coelho gave the following evidence:

(1) He was asked to be a witness by P118 as part of the general request for witnesses. He read up some statements and wrote his witness statement on his own accord. P118 really just asked him questions. There was nothing stating this is what they should put in to a witness statement. It was “more to do with what answers we would want to give, which was basically our own answers. So my answers are effectively what I believe is true”. He then said that he wrote his witness statement in his own words but following certain formats (the heading, the outline of the numbering, et cetera).

(2) He thought that the witness request was the sort of communication that he got from P118. It was put to him that that in effect gave him and other potential witnesses a clear steer that they should emphasise the commercial benefits of the arrangements, and in effect downplay the tax benefits. He said that it states what SIS and CAR are, and the tax advantages of it, he does not think it was stating what he should put in his witness statement or that witnesses were being told to downplay the tax benefits. He thought it was simply pointing out the facts. He said, in effect, that whether he had read that or not, it is something which he agrees on. He had seen the list of 23 benefits. No-one asked him to emphasise or not emphasise particular points.

(3) His statement contained some similarities to the statement of other witnesses. He was taken to the statements of Mr Parker, Mr Dominguez and Mr Price and confirmed he does not know them. He agreed that (a) Mr Parker’s statement contained identical headings and both his and Mr Parker’s statements refer to succession planning for their children in similar terms, (b) Mr Dominguez made the same point on succession planning in his statement as he and Mr Parker did in very similar language to that made by them, and (c) Mr Price also that he makes an identical point on succession planning in very similar language to the point appearing in his and these other witness statements.

(4) He said that when they were asked for witness statements, there was some wording there which was similar. It was a choice to select whatever they felt was reasonable wording which was true. He said some of the wording looks to have been taken from P118/the witness request, but “it’s only what I believe was true in my statement, that I’ve actually written” and the wording is similar, but it does not mean that his statement is incorrect. He said it was not the case that somebody suggested to him that perhaps he ought to sort of muddle up the wording a little bit, or change it, so that it was not identical.

(5) In re-examination, he said that he read what P118 had written at the time of requiring witnesses. Simultaneously, he had also online read various articles, et cetera; and came up with this witness statement. He thought it possible that when he produced his statement he had in mind expressions or phrases from the detailed information provided about the benefits of incorporation when he incorporated. He was asked a leading question on this however so we have disregarded this last comment.

212. Mr Bullhar confirmed that HMRC are conducting an investigation into his personal tax affairs. He said he understood that this case is different from his personal tax affairs but it is affecting him quite seriously: he wanted to refinance but it is very difficult, due to the SRN numbers, most of the lenders are not considering it. He had volunteered to give evidence as he considered this case affects him directly in this way. He said that he was not necessarily provided with guidance on what to say in his statement, because there was already a lot of information given when they incorporated. It was put to him that there clearly are similarities between his statement and others in terms of structure, the points being made and the language used which suggests that he and witnesses generally must have been given significant guidance by somebody. He seemed to say, in effect, that there are similarities because everyone was thinking back to the original commercial reasons they had for incorporation.

213. Mr Holmes-Rogers gave the following evidence:

(1) He said there was a compliance check by HMRC regarding his wife’s position challenging the entitlement to IR. He said that these proceedings affect him and his wife directly, because the pool of lenders has been rather limited now because of the association with CB. So from a financial perspective, any mortgage renewal has been much more expensive as a result, and it’s also put everything on hold from a business perspective, certainly in terms of growing it, and obviously caused a certain amount of stress. In his view, the association with what is regarded as a suggestion of tax avoidance obviously is directly affecting him and his wife.

(2) He came to give evidence through a general request for volunteers on the secure P118 forum. He responded directly to P118 to volunteer. He produced the statement himself, with the notes that were provided by P118. There was nothing provided, in that “volunteer call-out letter”, in terms of the phrases used and information given, that had not already been laid out right from the beginning very publicly, because lots of documents on the P118 website state the advantages and disadvantages of doing certain steps. He did not see anything in that that he was not already aware of. He thought that “using people’s phrases which are the correct phrases for the industry is probably an attractive thing, rather than trying to make up their own words”. All of the words in his witness statement were his. He regarded the information on the forum as more of a reminder not to forget the other side of the reasons why one would choose to incorporate using SIS or CAR. He interpreted it as meaning “if these things apply, just obviously they’re very useful, and here’s a nudge”.

(3) There were multiple reasons beyond tax for incorporating, although it would be disingenuous to say that tax did not feature. For him it was not the main priority. He accepted that there was a reminder from P118 to at least not forget these non-tax reasons. He certainly read the list of 23 points. He read it very quickly, but it was not particularly useful because he already had the documents from previously but it was good to put it all in one space as a sort of a helpful summary.

214. Mr Panchal said that he came to give evidence through looking at the online P118 forum request for witnesses. He did his statement himself as when he phoned P118, the company went through all this, and he put down exactly how he and his wife incorporated. He went through the information on the P118 forum and he talked to his accountant and a lot of the reasons were the same as those listed by P118 (being the 23 listed benefits).

215. Ms Prescott confirmed that HMRC has opened an investigation into her personal tax affairs in relation to the incorporation. She had submitted all the information and has not heard anything back. She knew that the case was going on, and obviously it concerns her so she put forward her own account of her own circumstances. She volunteered to provide a witness statement. She confirmed that no one provided the points she should make in her statement or provided a template; she wrote her own statement. She submitted it to P118 for them to check it over because she did not really know whether what she wrote was relevant, and they sent it back with pretty much no amendments. She confirmed that she had the correspondence with Mr Alexander set out above. She disputes that she used a template but based on this correspondence it seems one was available. She said that there is no way that she would write something that was not her own. She would not go along with things that she did not agree with or were not true for her. As counsel commented, her statement is quite distinct from some of the other statements produced.

216. Ms Breakell said that P118 were asking for witnesses, and she put her name forward. She wrote it all herself. It is all her own work. She was not asked to make particular points in her statement. She thought she was given some guidance on what was not relevant. She thought it was quite possible she received the witness request. It was a while ago, and she does not specifically remember. She said that she honestly does not recall whether she was given guidance to the effect that her statement should say that her reasons for incorporating and using SIS arrangements were commercial, and tax may have been a factor, but was not the main motivation. She was asked whether as she had difficulty recalling the process for drafting her statement dated June 2025, she could be confident of her memory of things which happened four and a half years ago. She said it was quite a big issue, to incorporate; quite a big decision that had been considered for quite a while before going ahead and when she wrote the witness statement, she had documents to hand, as well. She did not have documents where she had set out in September 2021 her reasons for doing this. She said that since section 24 was announced in 2015 every landlord in the land was not wanting to buy BTL properties in their own name. It was just commercial suicide to do that.

217. Mr Jason Abbott said that he responded to a request from P118 for anybody who had witness statements to put forward. He sent the details of his reasons through to P118, and that was then referred to counsel, Mr Akin. He sent something close to the statement now produced. There was some conversation back and forth in email exchanges and some comments were made which resulted in the final statement. He believed that he was not asked to say particular things. He said, in effect, that the details he provided were the of factual matters, there were no changes to the facts, any changes were “probably more around structure as a legal document”.

218. Ms Deborah Brown said that she saw on the P118 forum that P118 were asking for people who would be prepared to say why they had done things this way and she volunteered. She cannot recall now if it was the witness request. She thought she was asked to write down why she and her husband had chosen to do this and the circumstances around it. She thought she would have asked for help in formatting it; in her view there is a lot more clarity when things follow the same format and the same matters could be addressed. It was put to her that her statement, involves quite similar headings and follows a similar structure to other people’s statements. She said that makes sense to her because the information needs to be set out in a logical and sensible manner. She cannot recall “exactly the to’s and fro’s, but the statement “express the reasons why we did everything”.

219. Mr Khanna said that he and his wife volunteered to give evidence in response to the witness request on the P118 secure forum. He drafted a document which answered the broad questions as to why they had chosen to incorporate using SIS/CAR and also the benefits that accrued from that. There was “backwards and forwards” in that he submitted his statement and thought that Mr Akin looked at it and suggested improvements, or additions or identified something superfluous that could be removed. He accepted that his statement follows a very similar structure to other statements, and it uses similar headings and indeed similar language. He said that headings would have been given to help people focus their thoughts on what is required in a witness statement, rather than just rambling. It enabled P118 to glean the necessary evidence that could be presented at the tribunal, rather than having waffle. The headings were, he suspects, more akin to questions. So it was being asked whether one of a person’s reasons might have been long-term business planning, and if so, “can you please explain in your own words, or your own narrative”.

220. Mr Feeney confirmed that HMRC have written to him and his wife asking for various pieces of information. He thought there was a relationship between the proceedings. Counsel explained that it is not. He was asked by P118 to set out why he followed their advice and incorporated. He cannot remember if he was asked personally or responded to a general communication. He was asked to produce a witness statement with his own personal reasons for incorporation. He sent that to P118, and they put it in into more understandable words, with all the legal and financial jargon in it, which he would not know how to do. He accepted that some of the headings in his statement look quite similar to headings which appear in other witness statements. He was asked if the language about succession planning came from him or P118. He said that succession planning was his main motivation for doing it.

Section 2 - Evidence of Advisers and Users on reasons for incorporation and experience of bridging finance

Mr Caravello and Mr Hill

221. Mr Caravello gave the following evidence:

(1) He had initial conversations with Mr Smith at the end of 2022 and he agreed that incorporation of his and his wife’s property rental partnership business would be a suitable course of action for him and his wife. He provided Mr Smith with extensive information relating to the business and its assets and liabilities, the fact that there was no capital left in the business. Mr Smith still advised him that that was the appropriate course of action.

(2) They wanted to plan for their eventual retirement and the handover of the business to the next generation and so chose to restructure into a FIC. They both had very modest personal pensions and wanted to accelerate the growth of their pensions by maximising contributions through a corporate pension scheme.

(3) When incorporating they had BTL mortgages on all their properties, many of which were taken out 15 or more years earlier and they had benefitted from ultra-low interest rates for over a decade. The Bank of England base rate climbed from 0.25% in December 2021 to 3.5% in January 2023 and they were coming under pressure to raise rents to cover rising interest costs. He believed that the inflationary pressure on interest rates would probably cool by 2024, so he wanted to defer any refinancing decision until inflation had reduced and mortgage interest rates became more competitive. At this time the retention of his existing mortgage finance was of significant importance to him. He wanted to maintain the same level of profitability before incorporation and after incorporation. He was not able to refinance as part of a decision to incorporate, simply because there were no lenders at the time who would have permitted novation of contracts. He wanted to keep existing mortgages that he had for a period of time. They had virtually none of their own capital in the business, having financed its extraction in previous years, so chose to incorporate using SIS to defer any financing decision until the mortgage market improved. The partnership business was incorporated on 1 April 2023.

(4) By early 2024 mortgage interest rates were becoming increasingly more attractive. They decided to raise mortgages in their company and to complete the transfer of legal title of the properties. From when they started discussions with their mortgage broker to completion of the mortgages was over 4 months. The process involved multiple simultaneous mortgage applications and property valuations, a change of mortgage lender due to products being pulled at short notice, 100 or more hours spent liaising with their mortgage broker, solicitor, property surveyors, tenants, writing to tenants about a change of legal landlord, dealing with changes to security deposits, serving new tenancy deposit certificates and requesting formal receipt notifications from tenants, notifying freeholder’s managing agents of changes and providing documentary evidence of transfer, etc. Land Registry updates took anywhere from 6 months, with the majority of them still outstanding at the time of writing his witness statement. The direct cost of this financing exercise was over £200,000 in fees to the lender, mortgage broker and solicitor.

222. Mr Paul Hill gave the following evidence:

(1) In 2017 he invested in three properties which he then let out to a tenant. The first one he acquired in his own name but the two others were later acquired direct into a company he had set up. He first became involved with P118 professionally in December 2020 when he had a consultation with Mr Alexander as a client on paying a fee of £400. At the consultation the focus was on considering whether he should incorporate his property business. However, Mr Alexander did not recommend incorporation. He wanted to align things but it was not commercially and practically viable for him to incorporate. His capital account was overdrawn so he would not have been able to obtain IR leading to a “dry” capital gains tax charge on incorporation.

(2) As set out in Part B, following that conversation with Mr Alexander, he became a consultant for P118 in September 2021.

(3) When he purchased his first property in his own name in 2017, he was not aware of the full implications of section 24. At that time, he probably did not know it existed and assumed that his mortgage interest costs would be deductible in full for tax purposes. He accepted that it was later learning about the implications of section 24 which prompted him to explore moving that property into his company. He added that, as well, he just wanted to neaten things up, rather than running and paying for two sets of accounts and he thought that having all of his properties in one entity would be a lot easier, from an administrative point of view. He thought that he did not acquire the two properties in May or June 2017 due to concern over section 24 - he “probably wasn’t fully au fait with things at that time”. That was more about “the limited liability aspect of things, just professionalising things”. When he bought the first property, he just wanted to keep things simple and straightforward, and to kind of assess whether this would work for him as he had not been a landlord before and thereafter make things more professional. He did not recall exactly when he became aware of section 24. He thought he wanted to keep things simple when he bought the first property on the basis that if it did not work out, he could sell it and, there was no company to wind up. “But once I’ve got proof of concept that it’s working….I then went to one company”. He became aware of section 24 around September 2017.

Evidence of advisers to the Users

223. Mr Malcolm Jones gave the following evidence in his statement:

(1) He is the founder of Brooklands Commercial Finance Ltd and a member of the National Association of Commercial Finance Brokers. Prior to founding Brooklands, he spent 17 years as a management consultant. Brooklands has traded as a commercial and residential finance broker for over twenty years, with him as its principal director. During that time, he has advised a large number (880) of commercial businesses on financing options and has sourced finance for clients from a variety of lenders. Brooklands has gained considerable experience in arranging finance for property businesses, including working with P118’S clients who have used SIS and CAR.

(2) In his experience, back-to-back bridging finance, like that arranged by P118 as part of CAR is not widely available in the market. Most finance providers will only offer bridging loans if they are secured against property, which typically incurs significant additional costs, including valuers’ and lawyers’ fees for conveyancing and securing the property. The majority of bridging lenders charge 2% of the loan amount as an arrangement fee as well as interest on the loan. P118’s arrangement of unsecured bridging finance provides a cost-effective alternative, saving clients from the extra fees associated with traditional property secured loans. In comparison to other available options, the bridging finance arranged by Pl18 provides remarkable value; it is highly competitive. The absence of valuation fees, legal costs, and security requirements makes it a more economical solution than what most brokers could offer in the marketplace for property-secured bridging finance.

(3) Many clients who he has worked with who chose to incorporate using SIS and CAR were driven by commercial factors, such as the ability to delay refinancing until it made more financial sense, or to avoid early repayment charges on existing loans. In several cases, clients sought the flexibility to refinance later, when more favourable mortgage terms or new commercial opportunities became available, such as better interest rates or additional finance for new acquisitions.

(4) In his view, (a) P118’s solutions allowed clients to manage their incorporation and financing in a way that aligned with their mortgage terms or new commercial opportunities became available, such as better interest rates or additional finance for new acquisitions and in a way that aligned with their broader commercial goals, without being tied to immediate refinancing and the additional costs it usually, and (b) the bridging finance arranged by P118 as part of CAR has provided exceptional value compared to traditional secured bridging loans. The lower fees and flexibility it offers have helped clients avoid unnecessary costs while managing their business restructures effectively.

224. At the hearing he gave the following evidence:

(1) His knowledge of SIS and CAR really comes from working with clients who had previously implemented those arrangements and later wanted to refinance, once the properties are in NewCo. He is very familiar with bridging finance. The traditional use of it is to finance the purchase of a new house for a person to live in before his existing home is sold on the basis that the finance will be repaid when the existing home is sold. Now it is used for multiple reasons. One of the main ones is to finance home renovations (such as putting in a bathroom or kitchen) for which a conventional mortgage would not be available. It was put to him that in such scenarios, bridging finance is in place for a material amount of time. He said that it would typically be in place for between one and 18 months. If it is a regulated transaction, the maximum is 12 months. Bridging finance on a person’s home is regulated whereas generally bridging finance on a BTL is not. In his experience interest is normally charged on bridging finance and a lender charges 2% of the loan as an arrangement fee.

(2) He confirmed that when a bridging loan is made in a normal scenario, the proceeds of the loan pass out of the lender’s control although funds move via the client’s solicitor and the lender would take security for example over the existing home and possibly the new home. The lender would insist on having security because he needs something to protect his position in case the borrower does not repay the loan.

(3) He confirmed that he is familiar with the Bridging Loan arrangements made under CAR. He said that this was cheaper than traditional bridging finance and provides remarkable value. He agreed that in aggregate the fee charged by the lender and by P118 is equal to the fee charged by the lender on a standard bridging loan. He was aware that the Bridging Loan in this case was in place for a very short period and sometimes only one day. He said that for such finance a commercial lender would want three months’ interest to be paid. He was not really involved with the Bridging Loans in this case as they were arranged by P118. He accepted, in effect, that on the basis that the funds loaned never left the control of the lender there was no need for the Bridging Lender to obtain security.

(4) In re-examination when asked if would view the Bridging Loan arrangements under CAR as abnormal in any way, he said they were abnormal in that commercially, they were substantially cheaper, because a commercial bridging lender, would charge the 2% fee plus 3 months' interest, give or take 0.9 per cent per month, plus the valuation, plus conveyancing fees, so this was quite unique.

(5) He accepted that one important reason why people chose to incorporate was to avoid the effects of section 24, another important reason was the tax rate benefit. He was not familiar with IR. In re-examination he confirmed that he is not an expert in taxation matters.

225. Mr Jonathan Rose gave the following evidence in his statement:

(1) He is a solicitor and partner at a firm of solicitors, Harold Benjamin. He has been involved in over 100 refinancing transactions for clients of P118, where the legal title to properties was transferred to a company post incorporation of a rental property business using SIS or CAR. His role has been solely to manage the legal aspects of the transfer of legal title and to assist in arranging finance in the company name.

(2) Based on his experience, clients who chose to incorporate using SIS/CAR generally did so for a range of commercial reasons, including:

(a) The need to refinance at a later date, once early repayment charge periods had expired or original mortgage terms were ending.

(b) Clients were often attracted by better interest rates available to limited companies or by the opportunity to raise extra finance to acquire additional properties.

(c) For some clients, the ability to delay the transfer of legal title and refinancing allowed them to manage the costs and complexity at a more convenient time.

(3) Timing of Refinancing Transactions: While some of the refinancing transactions he was involved with took place relatively soon after the initial incorporation, the majority of cases have involved refinancing months or even years later, when it was commercially advantageous for the client to do so—whether to avoid early repayment penalties, secure better interest rates, or raise additional capital.

(4) Since HMRC issued SRNs for SIS he has observed that the majority of lenders have refused to consider new mortgages for clients who have incorporated using this method.

(5) Based on his involvement in these transactions, he can confirm that clients who have incorporated using SIS/CAR generally did so for commercial reasons, such as the flexibility to refinance later, attract better interest rates, or raise additional finance. His role has been solely limited to handling the legal aspects of title transfer and refinancing, without offering any advice on taxation matters

226. At the hearing Mr Rose gave the following evidence:

(1) He described the documentation relating to the incorporation as fairly esoteric, in particular, as regards the split of title. A number of clients reported that their solicitors simply did not really understand the documents. So they wanted to go to a solicitor who they believed understood what was going on. His firm were very proactive in acting for lending institutions and were on the panels of a large majority of lenders, including mainstream lenders and smaller commercial lenders. Clients came to them with a view to taking out a new commercial loan in the name of NewCo and using those funds to pay off the partnership mortgage. It was better for them in every sense to liaise through a firm of solicitors who was on the panel of the relevant lenders which means they can act both for the borrower and the lender and makes things easier.

(2) As regards the reasons for incorporation:

(a) It was put to him that one of the major reasons why people were interested in incorporating was in order to get around the effects of section 24. He said that is not necessarily the case: “they came for all sorts of reasons. I’m sure that was a reason, in some cases,” but in fact he has “done quite a fair few of these incorporations involving companies where there were no corporate borrowings to be refinanced”.

(b) As regards the tax rate benefit as a reason for incorporation he said that does not necessarily accord with his experience, “added to which, of course, whilst the profits are within the company, it doesn’t get the money into the pockets of the shareholders…. If you take a dividend out of a company, then that would be subject to further taxation…. I’m not a tax lawyer, so, you know, the extent of my knowledge is very limited on that.

(c) He was not familiar with issues relating to obtaining IR on incorporation.

227. Mr Simon Close gave the following evidence in his statement:

(1) He is a Chartered Accountant and the Managing Partner of Censis, Chartered Accountants. They provide accountancy and tax compliance services to numerous clients for their property businesses. In recent years he has been approached around 15 to 20 times by interested parties, generally through referrals from P118, in respect of the incorporation of property businesses. In some cases, there were reasons why it was not possible (not a partnership, not enough working hours to justify treatment as a business etc) and some proceeded. He has five clients who used P118/CB for the incorporation. The initial client was his who found P118 himself and they and CB then made subsequent introductions to him. Two of those came to him before the incorporation process started, one came to him after CB had dealt with the incorporation and one was a further existing client of his referred to P118. He has also advised on property business incorporations that did not involve P118/CB that used IR. His role was usually to provide input and discuss the general tax, accountancy and ongoing tax compliance implications of their proposed approach.

(2) They discussed the potential commercial benefits of the SIS/CAR structure, which included:

(a) The ability to retain legal title of the properties while transferring beneficial ownership, thereby deferring potentially significant costs and administrative burdens.

(b) The flexibility to avoid immediate refinancing, which could have introduced significant additional costs or complications.

(c) The option to defer refinancing until a more commercially advantageous time: His experience was that the key driver for those clients who chose to use SIS and CAR was the commercial benefits that these structures offered. One of the key benefits was the ability to transfer beneficial ownership of properties without the need for immediate refinancing, thereby greatly reducing the cost and complexity of the process. The flexibility to defer legal title transfer and financing decisions until a more commercially advantageous time was also crucial. Although statutory tax reliefs were not unimportant, it was the practical advantages, such as smoother management of mortgage liabilities and long-term business planning that made SIS and CAR the preferred choice for many of his clients. A number of them had significant equity in the partnership business. In most cases they had built their businesses by refinancing to release capital when property prices increased. This is generally a technique used in the growth phase of the business and most of the cases that he has dealt with involved established businesses such that they were, in general, past the phase of refinancing to fund acquisitions. As a partnership this means that profits can be withdrawn as cash flow allows without impacting on the tax payable. In a corporate structure this is not the case so the partners decide to refinance prior to incorporation to withdraw such equity and reintroduce the funds into their companies to assist cash flow. This was driven by the objective of allowing previously taxed profits to be accessed before they were locked into a corporate structure which would not allow such access. In his view, this was the motive in all such cases.

228. At the hearing Mr Close gave the following evidence:

(1) He said that he had a client who had had been looking to incorporate for a number of years, and the barrier to that was moving the properties across without remortgaging or refinancing as it was prohibitively expensive at the time to refinance. So it was almost a non-starter before the client came across the structures dealt with by P118/CB. He was a part of the discussions for a number of years with them about why they wanted to incorporate, and tax motivation might be an incidental. It was not the driving force in their case. In the other cases he could not speak as to their motivations as he was not involved in the relevant discussions. The client he does know about has no debt now and has not sold property post incorporation. So the uplifting in valuation on incorporation was not issue for them. They had one partnership, and ten limited companies that the next generation had set up. So they were just uncomfortable with having a partnership and different vehicles for essentially the same overall business. This one client had over 100 properties and obtained clearances for CGT and SDLT purposes.

(2) He accepted that one important reason generally for people to consider incorporation was because of the effects of section 24. In one of his cases, he thought that was a primary driver as the User was very disadvantaged by section 24. She was making something like £40,000 a year, but paying tax, effectively, on something like £90,000 a year, so pretty much not making any money post tax from the business.

(3) As regards the rate tax rate benefit, as the cases he dealt with were mature businesses, in the short term there would be a benefit from this but then the Users would have to get the profits into their hands and there would be tax on that at higher rates and there is no escaping inheritance tax. So, there is an immediate tax saving, perhaps, due to incorporation depending on how the businesses are managed. In three of his five cases, a big proportion of NewCo’s profits were distributed. So even at the time, in such cases, the overall differential in tax would have been relatively small. Funds in NewCo were going to be subject to tax either when taken out or when the net assets (the shares and the value of the company) are passed on to the next generation. He agreed that one can at least defer tax until some later time, by which time, hopefully, the funds in NewCo have grown.

(4) He agreed that another key attraction of incorporation was IR. He thought that none of the five clients had disposed of many properties. He accepted that for IR on incorporation to be available in full, arguably it is not possible to refinance at that time. He had seen cases in the past where refinancing has been done at the point of sale, in the name of the company, and that did not result in CGT being charged – it seemed he may have been thinking of a novation of finance scenario.

(5) Mr Smith took him to a non-statutory clearance that P118 prepared which seemed to be the clearance he had referred to which contained a list of non-tax reasons for considering incorporation. He was asked to explain a reference in the clearance application to an “offset facility”. He said that, at the time, the clients proposed to draw down funds under a revolving credit facility they had with two or three major banks and then loan that cash to the company in the form of directors’ loans. He confirmed that in that case it was contemplated that immediately or shortly before the incorporation, the partners would draw out their embedded capital in the business, and after incorporation, loan it to the new company in the form of these directors loans. He said that this was a mature business that had probably been going 40 years or more and there was a big lump of equity built up. If they had incorporated at that point without refinancing, then that tax-free facility would have been lost. It seems inherently unfair to him not to then refinance, with commercial finance to effectively secure that value that they had worked for. He thought if they had not done this the equity value would have gone into the company as shareholders’ funds rather than liquidity in the incorporated business.

229. Mr Revill gave the following evidence in his statement.

(1) He is the sole director of Premier Financial Services Group Limited, a company that provides bookkeeping and financial advice to a range of clients, including those with property investment businesses

(2) In February 2023, one of his clients, Mr Bernard Holt, sought his advice on the possibility of incorporating his property investment business using the SIS structure promoted by P118. His role was to provide input on the general tax, accountancy and ongoing tax compliance implications and to deal with ongoing compliance. It was understood that the ultimate responsibility and accountability for advising on the immediate tax consequences of SIS lay with CB.

(3) Mr Holt, at the time of discussions with P118 and incorporation, owned 33 properties and had mortgages with five different lenders, many of which agreements had early repayment charges, and if required to refinance, significant solicitors’ fees, arrangement fees, and valuation fees would have been incurred as well as a substantial amount of time and other professional fees. He estimated that these costs would have been in the region of £150,000 to £200,000, which does not account for any potential change in interest rates. Mr Holt and he therefore discussed the potential commercial benefits of SIS structure, which included:

(a) The ability to retain legal title to properties while transferring beneficial ownership, thereby deferring the costs as mentioned above and avoiding the administrative burdens of having to deal with lenders.

(b) The flexibility of avoiding the immediate and significant costs involved in refinancing, including the risk of being subjected to significantly higher interest rates.

(c) The option to defer refinancing until a more commercially advantageous time, which might align with the client’s long-term financial objectives.

(d) The ability for future ease of transmission of the business to Mr Holt’s family upon his passing.

(e) If Mr Holt also chose to sell the business, the structure of an incorporated business would allow this to be achieved via a more commercially economical process, which would also save additional administrative costs.

(4) His experience here was that his client’s primary motivation for adopting the SIS approach to incorporation was based on the commercial issues listed above.

230. At the hearing Mr Revell gave the following evidence:

(1) He has his own property portfolio but has not used SIS or CAR. Mr Holt did his incorporation in November 2023. One of the reasons why Mr Holt found SIS attractive was that this enabled him to incorporate without the costs associated with immediate refinancing.

(2) As regards tax reasons for incorporation:

(a) He accepted in effect that one important reason why many people thought about incorporation was to avoid the effects of section 24. He said :“Yes, regardless of whether you’ve used SIS or another system, it could be a reason for incorporating”.

(b) As regards whether his experience is that the tax rate benefit makes incorporation attractive to people, he said “yes and no, depending on the situation”. Mr Holt’s business made losses. So he was drawing out funds and paying tax on that at the higher rates but then made slight losses. Other people may well want to incorporate to pay corporation tax and then potentially dividend tax. Whether one uses SIS or another method to incorporate, that result would be the same.

(c) As regards IR being an attraction of incorporation, he said: “Yes, again, but that would occur in any corporation regardless of if you used SIS. If you use any form of incorporation…. you’re talking about the general principles”. He was not so familiar with issues regarding whether a refinancing could prejudice the availability of IR on incorporation.

(3) As regards the view that incorporation facilitates succession planning, he said (a) that is correct because in a corporate business one deals with one asset, the shares and not each property with potentially individual liabilities. It is one single entity which obviously potentially leads to a quicker and easier process of things, and (b) also, passing things on to the family would be easier using a company, in terms of them dealing with one entity and just the shares being transferred rather than multiple properties with multiple titles and multiple liabilities – using a company makes it “far more economical when you come to passing things on, and it makes it a lot easier and less of a bearing on the people it is being passed to”.

(4) It was put to him that such considerations are very context-dependent and, for example, if a User has two children, it may make more sense simply for the User to give half of the portfolio to each child. He said that he did not agree because in a corporate scenario the shares could be split 50/50 as opposed to dividing say 30 properties on a 50/50 basis, which raises issues such as having to negotiate which properties go to who and whether each person gets a 50% share in each property and that leads to further complications. He accepted that if there are children who do not necessarily get on particularly well, locking them into a single company together may not be a good idea; in those cases it may well be cleaner simply to give some properties to one child and some properties to the other child, and they can go their separate ways. He accepted that whilst a company in some circumstances might make succession planning easier, it would all be very context-dependent. He said, however, that in a company there is a board of directors to operate on behalf of the shareholders and discuss matters in a more large-picture frame, rather than having to deal with matters on a property by property, liability by liability basis.

(5) As regards his comments that a company structure facilitates a sale he said:

“if you sell a property, you have to go through the whole process of the new owner getting a loan. Whereas if you sell a limited company, and sell the shares, then the liabilities within the company don’t necessarily have to change at all…. Some lenders may insist on obviously having some changes, but yes… But if you've got any company with liabilities regards to a property company, or any business, there's always liabilities, and selling any company's assets versus selling the shares, it would be easier to sell the shares in a majority of businesses.”

231. Ms Helen O’Dell is a chartered certified accountant, having qualified in 1989 and provides accountancy and taxation advice to clients via her firm, HJO Tax Consultancy. In 2018, one of her clients, Mr John Price, told her that he was considering utilising P118’s SIS to incorporate his property investment business which he then operated with his wife in partnership. She set out in her statement that Mr Price discussed the principal commercial benefits with her before he decided to incorporate. However, at the hearing she said that (1) she saw the documentation for SIS but Mr Price contacted CB direct, and she was not involved in that at all. She was not involved in his decision-making process. He decided himself that he was going to go with, and (2) as regards whether it is correct that Mr Price discussed the principal commercial benefits with her before he signed up to the arrangements, she said: “It’s so far back. I mean, we’re talking 2017/2018. And a lot has happened since then. So to …remember exactly what was said, when it was said, how it was said, is very, very difficult.” In light of this evidence as to Ms O’Dell’s lack of involvement and recall, we have not attached any material weight to her limited comments on Mr Price’s motivations and they are not set out here.

232. Mr Kumar gave the following evidence:

(1) He is an FCA Regulated Broker and a member of the London Institute of Banking and Finance. Before this he worked for the Chelsea Building Society and held previous roles with Barclays Bank and the Alliance and Leicester, a total of 35 years in Financial Services.

(2) He has traded as a mortgage/commercial finance/protection broker for over 23 Years. During that time, he has advised a fair number of commercial businesses on financing options and have sourced finance for clients from a variety of lenders. He has considerable experience in arranging finance for property businesses, including working with a P118 client who has used SIS and CAR

(3) In his experience, back-to-back bridging finance, like the solution arranged by P118 as part of its CAR arrangements is not widely available in the market, but where it is available, lenders will usually charge 2% of the loan amount as an arrangement fee, as well as interest on the loan. In addition, most lenders will require the borrower to provide security. The typical brokerage fees charged for sourcing bridging finance are, in his experience, 1% of the loan, i.e. the same level of fees as those charged by P118 for introducing clients to Succeed In Property Limited (one of the Bridging Lenders).

(4) In comparison to other available options, the bridging finance arranged by P118 provides remarkable value. The absence of valuation fees, legal costs, and security requirements makes it a more economical solution than what most brokers are able to offer in the marketplace. Bridging finance that is secured against property usually involves a range of fees, such as broker fees, exit fees, lender arrangement fees, and interest, all of which make traditional property-secured bridging finance significantly more expensive for clients. The solution offered by Property 118 is highly competitive in comparison.

(5) Based on his understanding, the back-to-back cash bridging finance solution arranged by P118 for his clients has provided exceptional value compared to traditional secured bridging loans. The lower fees and flexibility it offers have helped clients avoid unnecessary costs while managing their business restructures effectively.

(6) At the hearing he confirmed that his only source of knowledge about the bridging finance involved in CAR is from what he discussed with a single client, Mr Blair. He had not had any dealings with P118 or any the staff there regarding the scheme. Mr Blair was a long-standing client at the time. He has not done business with him now for several years.

(7) He was not familiar with the Bridging Lenders or Mr Battacharya and was not aware that the finance was in place for one day only. In a typical arrangement, in his experience, depending on what finance was needed for, one would expect bridging finance to be in place for 3 to 6 months. There are multiple purposes for bridging loans as well. If there was outstanding finance for only one day, one would expect to pay interest for that one day. He was not aware that under CAR the funds from the Bridging Loan never left the control of the Bridging Lender. He confirmed that in such circumstances, where the lender has access to the funds at all times, it would be unlikely to expect additional security. He added that bridging loans tend to be more specialised finance, and more often the provider will expect to see security in place to protect their interest. He said he had heard of Succeed in Property Limited only when he prepared his statement.

(8) In re-examination, he said a standard broker fee would be 1% of the loan and the typical lender’s fee would be 2% of the loan agreed. There would also potentially be valuation fees and legal fees. He considered the fees under CAR to be significantly different.

233. Mr Pateman gave the following evidence:

(1) He is a Chartered Accountant (FCA) and Chartered Certified Accountant (FCCA) and a senior partner at Segrave & Partners LLP, a six-partner accountancy practice. He had over 28 years of experience advising clients on accounting, taxation, compliance, and financial structuring, with particular expertise in property taxation and business incorporation. His firm acts for numerous clients in the property sector, including landlords, developers, and investment businesses.

(2) In 2020, HMRC opened a detailed compliance check into the 2018/19 tax year for his clients, Mr & Mrs Wieland, specifically regarding the incorporation of their rental property business. Following this review, on 3 February 2021, HMRC issued closure notices confirming that no amendments were required to their tax returns. Following his endorsement of P118 on their website, 14 additional clients who had incorporated using the same structure via P118 and CB or were considering doing so approached his firm to act as their accountants and tax agents.

(3) These clients were seeking: an accountant familiar with the compliance process surrounding the structures; someone who had first-hand experience dealing with HMRC inquiries on the matter; assurance that their structure had been successfully tested and accepted by HMRC.

(4) He expressed opinions regarding why HMRC issued the SRNs, that HMRC sought further information in relation to the earlier enquiry and enquired into five of the 15 clients who incorporated using SIS and had sought his firm’s advice. He asserted that “this sudden reversal appeared to be driven not by new legislation or case law, but by a change in HMRC's policy stance following media pressure…The targeted nature of these actions raises serious concerns about procedural fairness and taxpayer rights”. We have disregarded these comments as they are not relevant to the current proceedings.

(5) He considers that there was significant due diligence undertaken by all parties prior to the incorporations under SIS, particularly in relation to establishing eligibility for IR. In April 2021, Mr and Mrs Gibbons contacted him for advice on the accounting and compliance implications of them implementing P118’s SIS and CAR structures. At that time, they carried on a property business in a partnership with 82 properties all of which were mortgaged with a variety of lenders. They took detailed advice on the legal and tax implications of the steps to be entered into from CB following a detailed fact-finding exercise by P118. He discussed the potential commercial benefits of the SIS/CAR structures with them at some length, including: (a) the ability to retain legal title of their properties while transferring beneficial ownership to the company, thereby deferring significant costs and administrative burdens; and (b) the flexibility of avoiding the need for immediate refinancing, which would have introduced additional costs and complications and delay; and (c) the option to defer refinancing until a more commercially advantageous time, which aligned with the client's long-term financial objectives. The portfolio included £9.3 million of mortgages spread across different lenders. He is certain that his client's primary motivation for choosing the SIS and CAR approach to incorporation was driven by the commercial benefits. Although the taxation consequences of incorporating were certainly discussed, they were not a major factor. The main purpose of incorporation was to structure the business in such a way as to make it more efficient to pass it on as a legacy to their bloodline.; all rents have since been paid into the company bank account. The company has continued to acquire further properties since its incorporation.

(6) The purpose of using SIS was to comply with HMRC’s published guidance, particularly in relation to ESC D32 and to obtain the commercial benefits of deferring the transfer of legal titles to the properties and the costs and effort required to organise new financing until it became commercially necessary/viable. The main purpose of CAR was to provide the partnership with sufficient liquidity, via short-term financing, to enable Mr and Mrs Gibbons to withdraw their positive capital account balances prior to incorporation. They subsequently reintroduced cash in the form of Director/Shareholder loans to the company post incorporation, thus retaining access to their previously taxed capital post incorporation without unnecessary or undue exposure to the risks and potential additional taxation consequences of locking that capital into shares. In his view, no tax was avoided, but the structure did ensure that the potential for additional taxation at some point in the future was not created. HMRC opened compliance checks into the incorporation in August 2023.

234. Mr Pateman gave the following evidence at the hearing:

(1) He discussed the potential commercial benefits of the SIS and CAR structure with Mr and Mrs Gibbons at some length in April 2021. When making his statement he referred back to contemporaneous notes of meetings and file notes. He said that section 24 means that there is an obvious benefit of a limited company but in the case of these clients, the reason incorporating was actually for “legacy” in terms of passing down the property business to the clients’ children and getting them involved in the business. Incorporation enabled them to involve their two sons in the business with a view to them taking over eventually. He is familiar with IR but said that in this case no properties have been sold since incorporation. In fact, the clients have bought more properties. It could be attractive in some cases but in this case it was not. He agreed that his understanding is that (a) if there had been refinancing at the point of incorporation, that could have jeopardised the availability of IR, and (b) as the clients used SIS, refinancing was not required so SIS enabled his clients to avoid that risk. He said that the tax rate benefit was discussed but the main reasons for incorporation were the legacy next generation point and also that they wanted limited liability protection. That was a major thing, with this litigious society people do want to protect their personal assets as much as they can.

(2) He accepted that Mr and Mrs Gibbons implemented CAR and it had the CAR tax benefit. He said that they have withdrawn a small amount only of the director's loan. In questioning by Mr Smith he confirmed that, if on the day after CAR was put in place, the clients had wished to extract funds from NewCo, they could not have done that by way of dividend because there would not have been distributable profits to do that. He said unlocking shareholders' funds after incorporation is very difficult. It cannot be done tax-free. Using a director’s loan does not require distributable reserves and does not attract cash.

(3) In questioning be Mr Smith he was taken to letters from HMRC dated 22 November 2023, to his firm relating to Mr Gibbons and Mrs Gibbons. It states: “As you may be aware there has been considerable media interest in cases concerning advice provided by Cotswold Barristers, Property118 and its associates.” He confirmed that this refers to the social media campaign he had referred to in his evidence.

Evidence of Users

235. Mr and Mrs Harris gave the following evidence in their statement:

(1) They originally started investing in property by purchasing six BTLs in prominent cities to find the best fit. They later decided to project manage, design and build the properties. Two issues lead to them looking at incorporating: (a) they needed to consider succession because their exposure to inheritance tax would continue to increase as the value of their properties appreciated, and (b) their eldest son had been estranged for some time. They did not want to disinherit him or cause their younger son estate issues in having to deal with things at a later date. The research they undertook led them to P118, whose comprehensive consultation service helped them to consider further reasons for incorporation. Transferring to a company made long-term business sense as it enabled their family to become involved. they hope that their sons will eventually become directors of the business and operate it during their retirement and beyond, as a legacy for their own families. Their mortgage adviser also explained that that operating the business within a limited company structure might enable them to obtain mortgage financing past our retirement age (if needed) instead of selling. Their children and future grandchildren would have the opportunity to build on their efforts.

(2) Based on the recommendations of their P118 consultant, CB created a bespoke FIC structure for them to freeze the value of their own shares and to create another category of shares, with minimal initial value, but to which all future increased value in the business would accrue for the benefit of their bloodline. They are hopeful this will provide sufficient incentive for their children and eventually their grandchildren to continue to grow the business.

(3) At the time they incorporated, they still had some mortgages on some of the original BTL properties. One of those properties was unable to be sold and could not be remortgaged due to cladding related issues. That remains the case to this day. Even if they had been able to organise new financing in the company name, it would have been an expensive, disruptive and challenging process. It would have required mortgage valuations and they would then have needed to engage conveyancing solicitors, pay arrangement fees to lenders and brokers and deal with a whole raft of additional administration such as issuing new tenancy agreements to tenants in the company name and re-protecting deposits, etc. They had read several articles on the P118 website explaining that mortgages and legal titles did not need to be moved into the company to achieve incorporation. They recall reading about case law acknowledging that taxation follows beneficial interest, and transfer of legal title was not necessary for incorporation reliefs to be applied. It was the transfer of beneficial interest that mattered.

(4) During the consultation period with their P118 consultant, which spanned several weeks and required a lot of research into how they ran their business and involved significant time and effort to delve into details such as evidencing the values of our properties, acquisition costs and liabilities – they also learned that arranging new finance in the company name was not recommended anyway. It was explained to them that if they did that, HMRC might treat the repayment of their existing mortgage liabilities as a cash payment and trigger CGT liabilities. They were shown HMRC manuals to support this, and also guidance from leading industry textbooks. It was also explained to them that SIS was designed to dovetail with the legislation and HMRC guidance manuals, not to provide any tax benefits. While they acknowledge that, without the ability to mitigate “dry tax” in the form of CGT and SDLT when transitioning their rental property business would have made incorporation unaffordable, they also understand that the reliefs were designed and implemented by Government for exactly that reason. P118 also explained that CGT had not been avoided by using IR. Instead, the gains were rolled over into the purchase of shares and the CGT would fall due when those shares are disposed on.

(5) £872,815 of their own funds had been invested and retained in the business in their positive capital account balances. This was substantiated by the base costs of the business for CGT calculation purposes exceeding the liabilities of our business by the same amount. Subject to cash being available in the business bank account, that money could have been returned to them at any point, without taxation consequences. They wanted that to be the case after the incorporation. Their P118 consultant understood this and showed them the HMRC manuals explaining that an unincorporated business can raise commercial finance to provide the necessary cash within the business to enable the owners to withdraw their capital, so that’s what they did. P118 assisted them in sourcing short-term lending prior to the incorporation. P118 had also shown them the HMRC manuals explaining this was what is “normally” done, so they had no reason to doubt the validity of it. The company could have sold properties to provide funds to repay their shareholders' loans, but they didn’t want to do that. The company could also have arranged longer-term finance to repay the short-term loan, but they did not want to burden the company with the servicing costs of long-term debt either. Therefore, they arranged for the funds they had loaned to the company to repay the short-term loan at the earliest possible opportunity. If they ever need to raise additional funds the company still has the choice to sell property or to raise new long-term finance. The money they withdrew from their business had already been taxed. The sole purpose of the short-term financing was to solve a very short-term and entirely commercial liquidity problem.

(6) Since the incorporation, they have gifted some of the benefit of their shareholder loans to their children in the knowledge that these are potentially exempt transfers for inheritance tax purposes.

236. At the hearing they gave the following evidence:

(1) They incorporated their property business on 5 April 2023. Their main interactions with P118 regarding incorporation were in 2022 when they had a consultation with them to talk about the possibility of incorporating. The case passed to CB around January 2023. They looked at several different possibilities over ten years or more. They committed to incorporation probably in November 2022. The reason for the delay is that they are very cautious, they just like to check everything and tick every box.

(2) Mr Harris had a career in construction but his rental property business became his sole full-time occupation. They disposed of the BTL properties slowly but some of them were the subject of the incorporation as were the properties they had constructed/developed.

(3) They first became aware of the possibility of incorporating their business in 2011 through a seminar that made them realise they had to do some fairly serious planning. Before they came across P118, they consulted probably another four or five, consultants, of all varying qualities, but none of them gave them the answers that they were looking for. They had already formed, by that time, a picture of what they wanted to do and how they wanted to do it. Succession was the first item on their agenda to improve their children’s lives after they are gone and there was an opportunity to impart some of their knowledge before they are gone. Because their eldest son was estranged, that was quite important to them, because they could not help him in any other way. They hoped to find him, eventually, and they have. They wanted to involve him and their other son in the business as directors to learn how to operate the business and to take it on after they were gone. It was put to Mr Harris that could have been achieved using a partnership by giving them roles without them being partners. He said in effect that using a company is easier and they felt it helped with succession.

(4) Mr Harris confirmed that he understood the effect of the section 24 changes and that he probably became aware of that mostly in 2021 when it became fully effective. He said that it did not really affect them as they were both basic rate taxpayers and the section 24 changes did not really inform the decision to incorporate. He added that most of their properties were not subject to mortgage.

(5) There was a long period of delay (in that they incorporated long after they had first considered it) as it took a long time to find somebody who actually knew what they were talking about. He was not sure that using a FIC with “growth shares” for inheritance tax planning purposes was an attraction of the arrangements. They just wanted to get everything in order. It would be better to talk to his wife about that. She has a clear picture of everything. He was familiar with the “growth share” idea.

(6) He thought they first came across P118 during 2022. His wife read on the internet what sort of things they did, and it concurred with everything they were thinking. She had done a lot of research through HMRC manuals, and it sort of seemed aligned to that. Tax was certainly part of her thinking even before P118 came onto the scene. They then had a consultation with P118 and that is when SIS and CAR were discussed. Tax planning is very relevant when you run a business so that would have been discussed but they had pretty much already figured their own route. They just wanted someone to help to make it happen. They had educated themselves about these tax issues before they went to P118.

(7) P118 produced a report. Mr Harris thought they must have been provided by P118 with something similar to the tax comparison table in the advice letter but he did not think it was really relevant to them because they did not have much debt and they were only basic rate taxpayers. He thought they would have received a letter like the template letter from CB with the draft documents and that CB set up the company. For CAR thought they received a facility agreement that was similar to the one in the bundles.

(8) He was taken to the ultimate guide and confirmed he is aware of the matters listed as the “Benefits of incorporation”. He accepted that one attraction of SIS was that it enabled a person to avoid having to refinance at the point of incorporation. He understood that if there was a refinancing on incorporation, that would have prevented IR being available. He thought in that case the whole idea would have been unviable as they would have had quite a substantial CGT liability without any funds to pay it. It would have been a nonstarter. He accepted that SIS avoided that problem, because it avoided the need to refinance. He thought the HMRC manuals provided for this.

(9) He was asked if he understood that CAR would enable NewCo to pay money to him without personal tax liabilities arising, as they would if NewCo paid dividends. He said that it was their money in the first place and there was a loan into the company. He said the money was tied into the company, but it should be his to take out: it is not about the tax, but he would want to get his hands on his money and only pay tax on it when its due.

(10) He said that he understood all elements in detail at the time and was not particularly concerned about splitting the legal ownership from the beneficial ownership. It was put to him that these arrangements are quite complicated and involve elements of risk, for example, in relation to what lenders might think about them and someone would be quite unlikely to implement them, unless there were some good reasons, including, tax reasons. He said he was not sure about the tax reasons. He added that it would not have been possible to remortgage at the right time; the costs would have been prohibitive as they had a fixed low rate of interest, but they would have penalties for early redemption and they would not have been able to re-mortgage the flat in London because it still has the planning issues.

(11) Mrs Harris explained that over the years, they had gone to several people to work out the best way for tidying up their affairs for their children. They did not want to leave a mess for them. They were not terribly happy with a lot of the advice that they were given. She did a lot of her own research which them to going down the route of incorporation. They both talked about that as being the best route for the fact they had a child who was estranged. They did not want to disinherit him. That seemed the easiest route to bring all their property together. They made that decision before they even contacted P118 for consultation. As regards her son, certain routes meant he would have to sign documents, which he could not do. Incorporation meant that they could leave things in a will where, if they did make contact with him and/or had future grandchildren, they would be able to support that. When it was put to her that they did not need a company to do that, she said: “Well, it’s part of the tax planning that we wanted to do.” Given the context of that comment, we take her to refer to a desire to implement inheritance tax planning and not, as HMRC submitted, the desire to obtain the tax benefits set out in Part A.

237. Mr Birch gave the following evidence in his statement:

(1) He and his wife are landlords with a property portfolio of sixteen properties. When they started their BTL property business in 2002, their intention was to create a company that would provide an income in their retirement and a legacy for their children. Their mortgage broker advised, at the time, that BTL mortgages for limited companies were considered niche. Most lenders did not offer products to companies so availability was limited and, if available, interest rates were typically 1.0 to 1.5% higher resulting in 25% higher annual costs. In addition, such mortgages higher arrangement fees, underwriting was more complex and often personal guarantees were required. The advice they received at the time was to buy the properties in their own names.

(2) Following a health scare in 2020 it occurred to them that, in the event of their demise, their intended legacy could become a liability for their children and it made commercial sense to revisit incorporation to best enable succession planning. This was the prime reason for incorporation. They believed any income tax advantages for a portfolio of their size were minimal and would not justify the cost of incorporation. As none of their mortgage lenders offered novation, if they had not used the arrangements they would have needed to take out new mortgages in the company name at the point of incorporation which risked jeopardising the application of ESC D32. Also advantageous mortgage terms would be lost – their existing mortgage rates averaged 2.84% whereas new company mortgages would be typically at a rate of 3.99%. This immediate 1.15% increase would have cost an additional £20,616. The expense and complexity of simultaneously transferring legal title to their 16 properties with 6 different lenders seemed virtually impossible to co-ordinate and prohibitively expensive. It would have cost them upwards o £150,000 in fees and expenses, plus their ongoing mortgage interest costs would be around 25% higher.

(3) SIS offered a way to overcome these problems. Their accountants considered and accepted the proposal. Their due diligence was extensive and they learned that HMRC had launched a unit to investigate FIC structures. CB and P118 told them that HMRC had concluded at the time that the structures they adopted were a perfectly legitimate form of business continuity and legacy planning. This was a major reason for adopting SIS. The HMRC task force set up to investigate FICs was, they were told, closed in the summer of 2021. To now be labelled as participants of a tax avoidance scheme is deeply offensive and is disrupting their business. It does not in any way reflect the motivation for their actions.

238. At the hearing Mr Birch gave the following evidence:

(1) He absolutely remembered the events set out in his statement. As regards succession planning he said that his understanding is that (a) if he and his wife were no longer here, then the existing mortgages over the properties would need to be repaid in a very short period of time and that was kind of onerous on the children to have to inherit that problem, but (b) if the properties were put into the company name, then that would not be the case. It was put to him that it is fairly straightforward for a person’s successors to take over an existing mortgage. He thought that it was not necessarily that easy and that the mortgages would have to be repaid probably within 6 to 12 months and the only way they could do that would be by selling the properties. It was put to him that in a company structure, the children would actually be in a much more difficult position in that they would have to try to sell the shares in the company to realise funds to pay the inheritance tax and they would not be able to keep any part of the portfolio. He said that does not apply in their circumstances, because there would be funds from their other assets to pay any inheritance tax. He did not agree that putting everything in a company might make things more difficult for him if in his old age he needed to realise some funds for care home fees. He said that he and his wife are paid a salary by the company which should suffice to cover such costs.

(2) He had a consultation with P118 about the possibility of incorporation using these arrangements probably in 2018. The delay in proceeding to incorporate was because it was necessary to transfer the whole of the business, and they wanted to downsize from their existing property and move into one of the properties that was then one of the rental collection. At the time of the consultation, they had a debate on the income tax position. They did not feel there were any great advantage for a portfolio of their size in terms of income tax because they generally were not higher rate taxpayers. What attracted him more than anything was the ability to be able to pass on wealth to the next generation. His idea was to incorporate the business so that it could be passed on to his children who could then do what they wish with it. As he understood it otherwise the mortgages would need to be repaid on death.

(3) He confirmed that one reason why SIS was attractive to him was because it meant that he did not need to refinance at the point of incorporation. His understanding was that it was necessary “to incorporate the whole of the business in one go and to co-ordinate 16 packages of refinancing, was nigh on impossible to do. Whereas given this SIS, which by all accounts is a perfectly legal thing to do, you avoided that problem where you didn't transfer the whole of the business.” He could not explain precisely what he meant in his statement by his reference to ESC D32; he was not clear on the interaction of s 162 TCGA and ESC D32. He said, however, that it basically delays the payment of CGT until the the business is disposed of and allows the business to be transferred on incorporation without having to pay CGT.

(4) He thought that, when he discussed incorporation, they had discussed the tax benefits listed in the ultimate guide. He understood at the time that an attraction of CAR was that once money arose within NewCo, it could be paid out to him, without personal tax liabilities arising, as opposed to receiving funds by way of dividend. He said that the attraction of CAR was the fact that when he first started the business in 2022, he remortgaged the home property, and in the region of £70,000 of their personal money which had been previously taxed was introduced into the business by way of deposits on BTL mortgages. Essentially the same £70,000 was dealt with under CAR. So it was money that they previously paid tax on. CAR seemed to allow them to release that money rather than leaving it in the company.

(5) As a layman, he had a pretty good understanding of it all. He thought the arrangement was complex. The problem was the refinancing and this structure, in his opinion, gave him a way of getting around the problems that caused. He did not have any concerns about, for example, the splitting of beneficial ownership and legal ownership. He believed that that was an approved system where there is substantial incorporation as approved by HMRC as something that could be done.

(6) Mr Smith asked how long he spent in discussions with P118 and his barrister before he was presented with the documents He said that it was spread out over a period of time, he struggles to be accurate on that but it was not an overnight thing, and he had a lot of time thinking about it before they made the decision to go ahead. He agreed that there was a lot of lead-up work that was necessary before they got to that point

239. Mr Yew Kei Ngan gave the following evidence:

(1) He was in partnership with his brother in their property business since their early 20s. Over time, as they got married and had children, they wanted to bring their spouses into the property business and eventually pass the business on to their children as part of their retirement and succession planning. After researching different options, they decided that incorporating using SIS and CAR would allow them to achieve this efficiently and practically. They incorporated the business in 2020, transferring all 14 of their properties to their new company.

(2) As part of CAR they borrowed just over £980,000 by way of bridging finance from Succeed In Property Ltd. This borrowing provided liquidity that enabled them to replace their partnership capital and taxed reserves.

(3) Their primary reason for incorporating was to create a structure that would allow for long-term succession planning, providing a clear path for the eventual handover to their children when they wish to retire. Incorporation offered them greater flexibility in managing the business, especially as their family circumstances evolved. Another key factor was maintaining their existing mortgage arrangements. Around half of their properties had cladding issues which meant refinancing them at the time of incorporation would have been very challenging (if at all possible). Also, they did not want to disturb favourable mortgage terms, and refinancing all of our properties at once would have been costly and impractical due to finance fees, survey fees, solicitor fees, and other associated costs such as early repayment penalties. From talking to their mortgage brokers, they were advised that to remortgage all 14 properties and to increase their borrowing to take back their working capital would have cost them at least £400,000 in fees and penalties. However, due to the cladding issues, refinancing was simply not an option, so the cost was irrelevant. SIS/CAR allowed them to preserve these arrangements while giving them the flexibility to refinance when it was most advantageous for them, rather than all at once.

(4) SIS/CAR provided several distinct commercial advantages that aligned with their goals: (a) “Retaining existing mortgage arrangements”: The structure allowed them to maintain their current mortgage terms, deferring refinancing until a more suitable time, (b) “Cost management”: Incorporating without the need to refinance multiple properties at once saved them significant costs related to fees and interest rate changes, and (c) “Succession and control”: Incorporation enabled them to establish a clear, flexible structure for eventual succession, ensuring long-term continuity.

(5) They relied on P118’s comprehensive advice, which was well-researched and tailored to their specific circumstances. Their guidance included clear explanations of the relevant legislation, case law, and HMRC manuals, which were invaluable in helping them make their decision. Additionally, the qualified advice from CB provided them with the legal reassurance they needed to proceed, ensuring that the SIS/CAR structure was both commercially and legally sound.

(6) While the tax treatment of incorporation was not unimportant, the commercial benefits of SIS and CAR were their primary motive for using this structure. Without using SIS and CAR they would have had no other option to incorporate, as a result of the pre-existing mortgages and the cladding issues.

(7) At the hearing he gave the following evidence:

(a) When pressed on why a company structure was in his view best from a succession point of view he said it just gives them a clearer structure such as in relation to who owns what; they needed clarity and flexibility. For two families in business together it just makes more sense than a partnership. For example, he thought that it enables a gradual handover to the next generation by a gradual transfer of shares. In a partnership structure, they could not do that. They could not give slices of property to his child and do it gradually, even if they could get lender consent which could be problematic. Also, there would be the repeated legal administration to transfer small amounts to the children. A company structure avoids all of those problems. It is just cleaner and more flexible for their circumstances.

(b) It was put to him that in his previous structure one could give one or more of the properties to a particular child or could sell an individual property and have the money freely available. He said he did not agree with that approach. If he had a falling out with his brother, it would be easier to deal with in a company and it facilitates continuity of the business in that he could sell shares to other family members. He thought that if there was a dispute such as over whether to sell a property that would be easier to deal with in a company through share ownership.

(c) He said that tax was not unimportant. They definitely considered it. The main driver was to get the flexibility to pass on to the next generation and a cleaner structure. They considered section 24 because they could see that the direction of travel was going to favour corporate landlords; the environment favours corporate tax law and it just makes business sense for them. It is not the main driver but, for sure, it was a consideration.

(d) They came across P118 as a source of information for property news. It is not their sole source. In 2017, having done their own research, they had a consultation with Mr Alexander and incorporation was part of the discussion. Prior to that there was an exchange of emails regarding the factual position and there was further “back and forth” after the consultation. Their accountant was copied into the reports produced by P118. The recommendation was to formalise the partnership, bring their spouses into it with a view to incorporation three-plus years down the line, if that still suited them. He does not recall if this was to do with avoiding a charge to stamp duty land tax. Their aim was to get a clearer structure. For him, those are more the technical details (regarding SDLT), which he gets his accountant to check out.

(e) When he had his consultation with P118, tax was at least one of the things that was discussed. At that timesection 24 definitely was a big thing in the news; it certainly prompted them to look at their business more closely to see how it could be cleaner and more efficient. But he would not say that was the main driver; it has always been their intention to make things cleaner. He accepted that there was an awareness at least of section 24 and the impact that would have on them. He said again it was not the main driver, but tax was not unimportant. As a business owner, of course they have to consider these things, and they would be at a huge disadvantage compared to other corporate landlords if they had not incorporated. So they obviously had to consider it.

(f) As regards the tax differential reason he said that he already knew that corporation tax would be lower, so they did consider it. But in their minds it was not a huge deal, because if they had to withdraw money from the company there would be additional tax anyway. So it was not really on their radar, in terms of why they wanted to incorporate. “Washing out” capital gains was just not really on their radar in terms of what they wanted to achieve.

(g) As regards CAR he said their understanding was that they had a positive capital balance that was rightfully theirs, that they could not access after incorporation if nothing was done. It made no sense to leave it there. So that is why they went with CAR. It does not seem good business sense to leave it, then they could not access it later.

(h) He said he only had a vague idea of what is meant by a “smart” company structure for inheritance tax and bloodline legacy planning. It sounds familiar, but it was not on their radar in terms of what they wanted to achieve. If this is the side effect of it that is fine. But this was just not on their radar, so he does not know the full details of how it works. Inheritance tax was not a big deal for them. It was put to him that his NewCo has different classes of shares. He said that just makes sense for them because his situation could be different from his brother’s. It does not make any sense to have the same class of shares. Basically, this gives them more flexibility.

(i) He did not understand the documents in detail. He thought they were no more complicated than other areas of business. He did not have any concerns in relation to splitting the beneficial ownership from legal title and his accountant was happy with it.

(j) In re-examination he said that he had not looked at articles on succession planning. In 2017 his wife was pregnant and his son was born later that year, so it was very much in his mind to get things clear. They had two families in one business and he wanted it to be clear for him and his son. He probably did look at succession planning information on the internet as part of his research but he cannot remember in any great detail. But for sure, succession planning was definitely on his mind, but he had lots of things on his mind that year.

240. Mr Alan Parker gave the following evidence.

(1) He and his wife are landlords of a property portfolio of some 26 residential properties that they have established over the past 20 years. At the time of incorporation, two of the properties were mortgaged. They decided to incorporate their property business in 2021 using SIS and CAR. Their primary motivation for incorporating their property business was for commercial reasons. These included:

(a) Long-term business planning: Ensuring that their business would be more robust for succession planning for their children. Their adult children were employed and directly involved in the business.

(b) Flexibility: Maintaining full control over their properties, allowing flexibility and ease of management. They felt that incorporation was essential to rationalise their affairs and keeping the business separate would have positive benefits to the company and their family.

(c) Liability management: Managing their liabilities effectively, i.e. mortgages and refinancing options. With such a large portfolio they had found it particularly difficult since 2018/19 to source mortgages and the pool of lenders was reducing, mainly due to their age counting against them. They had spoken to many landlords through their contacts in the NRLA and they had found it easier to borrow using a company.

(2) They examined other methods of incorporation but concluded SIS offered the best commercial advantages that suited their business needs. They sought advice from their existing accountant who suggested transferring properties to a FIC one at a time over 20 plus years, or establishing a mixed-member LLP. The first suggestion would have meant that they may have died before transferring all the properties and the second would not have realised the main benefits that we needed, i.e. ease of succession planning. SIS was the most logical option because their existing mortgage lenders did not offer novation. They were also advised by P118 of the risks that if they took new mortgages in the company name at incorporation, they might have lost the benefit of ESC D32. Without that concession being applicable it would have been prohibitively expensive to incorporate.

(3) “Commercial Benefits of SIS”: They chose SIS because of the commercial advantages it offered over other incorporation methods, such as the ability to retain legal title. This deferred the costs and administrative complications associated with transferring legal title during incorporation. As advised by their accountants at the time, transferring legal title of every property in their portfolio would have required them to refinance the two mortgaged properties with a lender who offered novation and it would cost around £17,000. However, they were advised by P118 that they were aware of only one mortgage lender who offered that (Paragon) and that lack of choice of lender would prevent them from seeking the best deal. SIS allowed them to defer the decision to refinance their properties until a more commercially advantageous time. Their mortgages were on low-interest rate fixed terms at the time and SIS allowed them to avoid the higher interest rates charged in the past 4 years. Having to refinance the mortgages would have placed an administration burden on them and novation of the borrowings was not available. They would have suffered early redemption costs of approximately £12,600 and increased interest rates going forward.

(4) They were aware that interest relief had become less favourable for unincorporated property businesses, and of the rate differential. However, they also recognised that any potential tax saving was largely offset by the additional income tax and NICs incurred when extracting profits from the company. Also, they had a very low level of borrowing across the business, so they were largely unaffected by the interest relief restriction. As a result, any potential advantage played little role in his decision-making. Similarly, he was of course aware of the effect of IR to defer their CGT liability. While acknowledging that statutory tax reliefs made incorporation financially feasible, the commercial benefits of SIS were their primary reason for using the structure.

(5) They were also aware through P118, that CAR provided liquidity by enabling access to the already-taxed capital in the business. Without CAR, those funds would have been locked into the company’s share premium.

(6) At the hearing he said that:

(a) He and his wife had beenlooking at incorporation for a while approaching their 60th year, and his understanding is that if they stayed as a partnership, then once they died and taxes and other liabilities had been paid off, most of the business properties would have to be sold. They did not want that to happen. They wanted their propertybusiness to continue,particularly as their children were involved in the business. They thought that having a company would professionalise the whole situation and also mean that the children could continue the business after their deaths. He acknowledged he could have gifted or sold properties to the children before he and his wife died but thought that there would be CGT to pay and possibly inheritance tax. He accepted that if he gave the shares in the company to the children, there would also be CGT on that. He said, in effect, that a company works for succession planning because there is an ongoing professional limited company that the children would be involved in, and literally they continue that company.

(b) As regards the benefit of limited liability, he confirmed that the tenants were not told of the split ownership. They were told on the date of incorporation that the company would be managing the properties and all responsibility was in its hands. If there was an issue the tenants would complain to the company because they dealt with the company. He said they told the local authority that beneficial ownership had moved to the company.

(c) He confirmed that he was aware of IR as he had set out in his statement and that as SIS enabled him to incorporate without at that point having to refinance, that meant that the availability of IR was not put at risk. He had forgotten what ESC D32 says; Mr Caravello had probably added that reference in to his statement. He said that, as he understood it, it was not a big thing as far as they could see, because they only had two mortgages. But at the point of incorporation, if they took out new mortgages in the name of the company, they may have lost the IR. He later said in re-examination that he was clear at the time that if mortgages were taken out in the company, that he might have lost the benefit of IR, at least in part.

(d) He did not know P118 until late 2020. They came to his notice through discussions with a friend who part of the landlords’ federation, who knew of somebody who had been through the process of SIS and CAR with P118. He then contacted P118 and asked for a consultation to discuss their requirements with regards to incorporation. The consultation at which SIS and CAR were suggested, was in April 2021. They had had two or three meetings by then. They incorporated in August 2021.

(e) He understands the effect of section 24. It was mentioned in the consultation with P118, but it was not a big part, because at that time they only had one mortgage. The differential rate reason was discussed as a benefit of the arrangements. He understood the point about “washing out” capital gains into the shares and he was aware of this as a benefit of the arrangements at the time.

241. Mr Greenland gave the following evidence: in his statement that

(1) In 2019, he and his wife owned and managed a property portfolio of 13 properties acquired using their own capital and mortgage finance, which they incorporated into Comfypad Ltd. Since incorporation, they have continued to expand their portfolio through the company, which now comprises 18 rental properties.

(2) By 2019, managing this growing portfolio as an unincorporated business became increasingly complicated. They sought a more structured and professional business model, which led to them using SIS. They were advised this would not change the tax outcomes of the incorporation on the basis that taxation follows beneficial interest. Their key reasons for incorporation were: (a) Professional business structure: They wanted to formalise their property business under a limited company structure, providing both limited liability and a clear business framework, (b) Separation of personal and business finances: They sought to separate their personal credit rating from the business, ensuring that any business-related issues, such as claims or penalties, would not affect their personal finances or credit standing.

(3) “Why We Chose the SIS arrangements”: Several commercial factors led them to choose SIS, including (a) Avoiding mortgage penalties: SIS allowed them to avoid early repayment charges on their existing fixed-term mortgages, enabling them to maintain the mortgages until their natural expiration, (b) refinancing flexibility: SIS provided the flexibility to reconsider refinancing properties when market conditions were more favourable and there were valid commercial reasons for needing to refinance, for example, the need to borrow additional funds to acquire more property. This flexibility avoided the need to refinance during periods of high mortgage rates. None of the properties have needed to be refinanced at this point because the business has not needed to raise extra cash and also because the finance terms currently available are less favourable than the terms in place, and (c) cost management: By using SIS, they deferred additional costs such as new mortgage arrangement and related fees and legal fees that would otherwise have been incurred, (d) Leasehold property complexities: All of their properties were leaseholds. Transferring legal title to their company in a conventional way would have involved seeking freeholders’ consent and incurring high administration fees from management companies. SIS allowed them to bypass these complications, simplifying the transactions necessary to proceed with the incorporation process, and (e) Business continuity: SIS enabled them to transfer the beneficial ownership of the properties to the company while retaining legal title temporarily, ensuring a smooth transition without the immediate need for costly legal and administrative processes.

(4) While incorporating was primarily driven by business needs, they also wanted to ensure that the process would not result in tax falling due in the absence of income to pay it. They were assured by legal advice from CB and tax advice from Insight Accountancy Services that SIS was a legitimate structure for incorporation. Both advisor companies confirmed that previous HMRC investigations had found no issues with this approach and advised that case law supported that IR can still be applied when only the beneficial interest is transferred.

(5) Their decision to incorporate was based on commercial needs to professionalise and simplify their property business. The method they chose to incorporate their business did not change the tax outcomes or available reliefs that would have been the case if they had chosen to incorporate using any other method.

(6) Establishing and evidencing the market value of each property, confirming the acquisition costs for CGT base cost purposes, and evidencing the mortgage balances and other liabilities was a substantial commitment for them, their P118 consultant, their letting agents and their accountants. The process took several weeks. The purpose of this was to produce a pre and post-incorporation balance sheet and to clearly identify the balances of their capital accounts. Having done that P118 arranged additional financing to provide the business with sufficient cash to enable them to withdraw funds they had retained in the business that had already been taxed. This was a mix of capital they had introduced into the business and profits after tax, which had been invested to grow the business. That cash was the only money they withdrew from the business before they completed the incorporation. All capital gains in properties owned by the business remained in the business and were exchanged for shares at the point of incorporation.

242. At the hearing he gave the following evidence:

(1) He and his wife decided to incorporate long before they came across P118. He did not know about SIS. It was probably in around 2014/2015 that they thought that incorporation would be a better model. He was aware of section 24 and its effect at some point before they incorporated and before they engaged with P118. When asked what role, if any, that played in his thinking about incorporation, he said that it affected the timing because he is a member of the National Landlords Association and that was a topic of interest amongst fellow landlords. He added that there were a number of things where he felt there was a move for landlords to be more professional and they were being gived a nudge towards incorporation. If they had not incorporated that would have increased their business costs substantially. They never modelled it, because they did incorporate. So it did affect the timing. About half of their business costs are mortgage interest but they never modelled it because it was not really a primary factor.

(2) As regards his points about limited liability and separation of finance he said this:

“Well, being responsible for your own debts is the point about being a separate legal entity, as opposed to limited liability…my brother and I both used to run book businesses. Mine was incorporated as a limited company; his wasn’t. When a big company didn't pay him, he went bust; it ruins his life. So limited liability is about a protection, of there being some sort of wall around the business…It is not automatically the case that if a business fails, you fail personally. So for me, that’s quite different from issues of simply credit ratings and the like.”

He confirmed that tenants of his properties were not told that the arrangements had been implemented. He accepted that if the tenants had a complaint, they would have come to him but from his perspective he was acting as an agent for the company under the agency agreement. He agreed that after incorporation he was still personally liable under any mortgage secured on the relevant properties.

(3) As regards his comments on the availability of IR on incorporation, he said that it was important to them to incorporate without gutting the business. He roughly knows what IR is. He was not familiar with the point that there is a risk that if NewCo had refinanced at the point of incorporation, then the availability of IR could have been jeopardised. He was familiar with the concept of “washing out” gains.

(4) He came across P118 over the internet at some point because P118 provides a regular update as part of continuing professional development, about landlord issues. He thought he must have something on their forum about SIS and CAR. He did not remember a consultation with P118 only consultations with CB and Insight Accountancy, an accounting firm. The factual information may have been provided to P118 as an intermediary.

(5) As regards the tax rate benefit he said that at the time of incorporation he had not focussed on the possibility to reinvest money to grow funds more efficiently within a limited company envelope. As regards “washing out” gains he said it did not make any difference, really, because they were never looking to sell the properties. The properties are what generate income.

(6) He did not have any concerns at all about the split in the legal and beneficial ownership which was involved in the arrangement. He thought it was perfectly normal to separate legal and beneficial ownership.

243. Mr Carlos Dominguez gave the following evidence:

(1) He and his wife and have (via their company) a property portfolio consisting of 10 freehold and mortgaged residential properties. They decided to incorporate their property business in 2018 and selected SIS.

(2) Their primary motivation for incorporating included:

(a) Long-term business planning: Ensuring that the structure of their business could be more robust for succession planning; they have three children who have an interest in continuing the business after them. Transferring shares in the company to them would be far easier than transferring interests in properties or to them would be far easier than transferring interests in properties or partnerships.

(b) Securing their retirement: They are hopeful that their children will take over their Directorships and the running of the property business by the time they are ready to retire fully, if not sooner. This is anticipated to be a phased process.

(c) Liability management: Their properties were financed by four separate lenders, each with different terms and conditions. SIS allowed them to defer the decision to refinance their properties until a more commercially advantageous time, rather than having to negotiate simultaneously with four lenders. Avoiding immediate remortgaging allowed them to avoid unnecessary fees and the risk of unfavourable mortgage terms. One of the properties has since been remortgaged in September 2022, to raise extra finance to fund refurbishments of other properties within the business. None of the properties have been sold since the incorporation. No others have been refinanced yet, given there was no requirement to do so from a commercially valid perspective.

(d) Cost control: By using the SIS structure, they avoided the costs and administrative burdens associated with transferring legal title during incorporation. The SIS structure also enabled them to save on broker fees, lender arrangement fees and early redemption charges and on having to instruct conveyancing solicitors and avoided the cost of surveys, valuations, searches and the lenders' legal fees.

(e) Administrative burdens: The SIS structure avoided them having to re-apply for new “Selective Licences” and “Additional HMO Licencing” (as regards three houses) which would have otherwise been necessary upon the change of legal ownership.

(f) His understanding was that SIS avoided any need to re-protect tenancy deposits. Furthermore, there is always a risk of disturbing tenants into believing their home is being marketed for sale when arranging new mortgage valuations. The SIS structure was also the most logical option for them because he understood from P118 and CB that not many mortgage lenders offered novation of their loans on transfer of a property investment business to a company, which meant that the taxation treatment of all incorporations where the company obtained new mortgage finance in its own name and used that money to pay off previous mortgages at the point of incorporation was doubtful.

(3) They also consulted their regular accountant, Mr Mark Ward, on the work that he would need to do for them after the transfer of our business to the company. They were basic rate taxpayers at the time so they were not affected by section 24.

(4) At the hearing:

(a) He said that for succession planning, a corporate structure works very neatly. They were not going to pass any properties on to their children in their lifetime, if possible, because they were a source of income and he does not have a very large pension pot outside of his property. Incorporation allowed them immediately to be able to have that structure. They have not done any specific “smart” company approach of using different shares for different children. He and his wife still control the business. He said that one day they may not be able to do that as the landscape is changing constantly. So for them it was just a neat way of doing this. A company is a nice legal vehicle to manage. Incorporation is an onerous experience. He did not do this lightly. But this was important because he felt that the landscape is such that there is very obviously a requirement to move toward a professionalisation of landlords. So long term viability, as a living, was bound up in them wanting to maintain themselves as landlords, and the incorporation they felt was the right way forward.

(b) The tenants were not informed of the changes. He accepted that SIS obviously meant that he did not need to refinance at the point of incorporation so that risk to IR, as he saw it, did not arise. He is familiar with “washing out” gains. He said that obviously that is an attraction, but it was not the primary factor because they were never going to try to sell any properties. If he wanted to sell a portfolio and restructure, then that would have been very important. But the important things are the factors set out above. He intends to keep these properties for as long as he possibly can because they are income. So the idea of “washing out” capital gains, may be a factor for some but not for them.

(c) He thought that he came across P118 probably on the internet, and through other people. They are a great forum. He first came across SIS online. The key issue was that he was either going to have to sell off the business to get rid of his mortgages, which would have minimised their pension pot substantially or, it was a matter of continuing forward with it. It was a very important thing that he knew that he was not involved in anything illegal. That is really why he is here, he wanted to make that absolutely clear: “I know it’s legal to minimise the tax liability, but I know it's very illegal to be part of a tax avoidance scheme…[but this was not]. That, for me, was the key, the most important point.”

(d) He had a consultation with Mr Alexander on 10 May 2018 and incorporated in July 2018. The idea of using SIS was discussed in that consultation or subsequently. He was advised by Mr Alexander to speak to his accountant as he did before the consultation. His accountant said that in his circumstances it made perfect sense to do this. He confirmed that his case was referred to CB and they drew up the transaction documents. He agreed that he was very careful to make sure that the tax aspects of this fell on what he felt was the right side of the line.

(e) As regards the rate differential reason he said that he was not a high-rate tax payer, so that was actually a minimal aspect. It was not a major factor.

244. Mr Clint Coelho gave the following evidence:

(1) He and his wife are (since December 2022 via their property company) landlords with a property portfolio consisting of 40 residential properties. In 2022, they decided to incorporate their property business, selecting P118’s SIS. They also used CAR. As a result, they were able to withdraw that capital and loan it to the company, rather than locking it into the share capital of the company.

(2) Their primary motivation for incorporating was driven by several commercial reasons, including:

(a) Long-term Business Planning: Incorporation provided a more robust structure for succession planning, allowing them to efficiently pass the business to their children without the need to dismantle assets or undertake financially burdensome refinancing. His youngest is still in full time education and the other three children are concentrating on their careers. His longer-term aspiration was for the children to join him in the business so that he could eventually retire.

(b) Flexibility: SIS allowed them to maintain control over the properties, enabling greater flexibility in decision-making, including the ability to refinance gradually. This avoided the logistical challenges and stress of refinancing multiple properties simultaneously, which would have been complex and time-consuming. To change all 35 mortgages at incorporation and keep the same level of borrowing of just over £1,300,000 would have cost in the region of £100,000 to include valuation fees, mortgage arrangement fees, solicitor’s fees. Had he also increased the mortgage balances to draw down his capital account, rather than using the CAR bridging finance arranged by P118, that would have cost in the region of another £250,000 in fees.

(c) Liability Management: The structure allowed for more effective management of liabilities, particularly concerning mortgage refinancing. By delaying refinancing decisions until more favourable market conditions, they were able to reduce financial risk and retain strategic control over the portfolio.

(d) Preservation of Mortgage Terms: Incorporation via SIS and CAR enabled them to keep their existing favourable mortgage terms. This helped them maintain the financial stability of the business.

(e) Avoiding Administrative Burdens: SIS allowed them to defer the immediate administrative burden of instructing conveyancing solicitors for each property, managing valuations and surveys, and complying with tenant-related regulations. He estimates that this saved him over 100 hours in time and £100,000 of money during the incorporation process.

(f) Minimising Disruption: By avoiding the immediate transfer of legal ownership, SIS helped minimise disruption to business operations, ensuring continuity in tenancy agreements and compliance with safety certifications.

(g) Managing Commercial Risks and Costs: Incorporation via SIS allowed them to delay costs and avoid the commercial risks associated with immediate refinancing or transferring legal title, giving them a clear and manageable path to transitioning into a company structure.

(3) Several mortgage lenders did not offer novation, and he was also advised by P118 that taking new mortgages at the point of incorporation might have cast doubts on the availability of ESC D32, leading to prohibitive costs. SIS provided the most logical and commercially feasible option.

(4) Commercial Benefits of SIS: SIS provided several significant commercial advantages, including:

(a) Retention of Legal Title: SIS allowed them to retain legal title of the properties while transferring beneficial ownership, deferring the costs and administrative burdens associated with transferring legal title during incorporation.

(b) Deferred Refinancing: By avoiding immediate refinancing, they could defer the decision to refinance until a more commercially advantageous time, avoiding additional costs and complications.

(c) Avoiding Unfavourable Mortgage Terms: The ability to avoid immediate remortgaging allowed them to sidestep unnecessary fees and the risk of unfavourable mortgage terms.

(5) While statutory tax reliefs were a factor in their decision making, they were not the primary motivation. Indeed, in their first period of operating as a limited company, they extracted £140,000 (virtually all of its profits) by way of dividend, nullifying virtually all of the advantage that might be obtained from the lower tax cost of operating via a company. The commercial benefits of SIS, particularly flexibility and the preservation of favourable mortgage terms were the key drivers behind their decision to incorporate.

245. At the hearing he gave the following evidence:

(1) As regards “long-term succession planning” he thought that incorporating basically helped with this, in that the property business could be passed on without a problem and his children could take over whilst he could retire. It appeared to be the simplest possible way of doing it. He was thinking in the long-term and incorporation seemed the easiest thing, rather than starting to sell properties or giving them to his children. This seemed the most plausible way of doing it and then it was an easier structure; it was much easier to do this than anything else he could think of.

(2) He confirmed that his NewCo had multiple classes of shares and there are different rights associated with those different classes and growth in the value of properties effectively benefits certain classes of shares and not others. He said he has not given the “growth shares” to his children, but he was not clear if/when they would go to his children. He thought there could be an inheritance tax benefit associated with this structure.

(3) He said he had a general understanding of IR but he was not sure about ESC D32 but he knew about it when he incorporated. It was put to him that he mentions it in his statement. He then said it is to do with transferring the properties without having to pay CGT. He had forgotten because he deals with so many things, because he is running this property business solely on his own. He thought he should have looked into it more just before this case but at the time of writing his statement he had looked at all these things. He said he did not quite understand the point about refinancing at the point of incorporation jeopardising the availability of IR. It was put to him that this is a further indication that someone has effectively given him points to make and words to say in his statement, which it seems he does not really understand. He said at the time of writing it he understood everything, and he read up quite a bit on these things. So ESC D32 he had actually read up on it at the time when he produced the statement.

(4) He accepted that avoiding the effect of section 24 was one of the factors in his decision to incorporate. It was not a main factor. There are several factors. One of the main ones was legacy planning, as well as having control of the property and its liabilities and being able to run it without a problem and legacy really came into as a major thing in respect of planning for the future. He was aware of the tax differential reason when he decided to incorporate. It was not a significant factor. It was a factor. The main factor was that incorporation was an easier way to pass down the properties, and to keep the company running and not just having to sell up. He was aware of the effect of IR as regards accrued gains at the time he decided to incorporate. He initially said it was not a factor in his decision-making. He has sold some of his properties but said he could have “sold the whole lot after incorporation if that was just the tax advantage of it”.

(5) He was aware of the effects of CAR. He was asked if this distinction was significant to him when he decided to implement CAR. He said that it was one of the factors. His personal share of the dividend income was £70,000 but he had some losses to utilise so there was no tax charge.

246. Mr Dalvinder Bhullar gave the following evidence in his statement:

(1) He and his wife have operated a property rental business in partnership since 2015. They built and managed a portfolio of 12 jointly owned rental properties. In November 2020, they incorporated their property partnership using SIS following the advice and recommendation of P118.

(2) The decision to incorporate was driven by several key commercial factors:

(a) Liability Management: Incorporating allowed them to ring-fence the potential risks arising from letting of the properties, protecting the remainder of their personal family investments.

(b) Succession Planning: Incorporating provided the flexibility to pass the properties down the generations in a structured way, allowing them to distribute ownership more easily over time. Their adult sons are shareholders in the company and they expect to take active roles in the business nearer when they feel ready to retire.

(c) Retaining Mortgage Terms: By incorporating through SIS, they were able to retain favourable mortgage terms, particularly low-interest rates secured at the time. At the time of incorporation, their typical mortgage interest rate was 1.6%, which according to our mortgage broker could have doubled had they needed to take limited company mortgages to replace their existing buy to let mortgages.

(d) Gradual Refinancing: SIS allowed them to refinance properties gradually, spreading the costs of remortgaging over time rather than incurring large upfront costs. They also had an issue obtaining mortgages on some properties due to cladding issues which are still not fully resolved.

(e) Avoiding Early Repayment Charges: SIS helped them avoid significant early repayment charges on one property which was locked into a fixed-rate mortgage. Had they refinanced the property at the time of incorporation, the early repayment charge would have cost £12,000.

(3) Commercial Benefits of SIS: SIS provided several significant commercial benefits aligned with their needs: (a) Retaining Existing Mortgage Terms: SIS allowed them to preserve their favourable mortgage arrangements without needing to refinance immediately, (b) Cost Management: The structure gave them the flexibility to manage refinancing costs over time rather than facing them all at once, (c) Flexibility: SIS offered flexibility in how they manage their portfolio, enabling them to adapt to changing circumstances, such as refinancing when commercially viable, and (d) Avoiding Early Repayment Penalties: The SIS structure helped them avoid costly early repayment penalties that would have been triggered by refinancing during the incorporation process.

(4) Impact of Changing Interest Rates: In November 2021, they successfully remortgaged one property and completed its sale within their company. Re-mortgage and completion of some properties was delayed pending resolution of cladding issues. They had planned to remortgage and sell several additional properties in 2022/23, but these plans were disrupted by the sudden rise in interest rates following Liz Truss's mini- budget. As a result, they have delayed their remortgaging and selling process until market conditions stabilise, which they anticipate will be in 2026.

(a) Upon incorporation, they incurred CGT due to “latent” gains of £393,000, where the liabilities of their portfolio exceeded the base costs used for CGT calculations. “We were fully aware of this and paid the CGT accordingly”

(b) They intended to extract most, if not all of the profit each year from the company by way of taxable income.

(c) Their decision to incorporate using SIS was driven by key commercial motivations, particularly the need to retain favourable mortgage terms, avoid significant early repayment charges, and spread refinancing costs and complications over time. IR was restricted – “we actually paid CGT on the transfer and any benefit from higher deductions for interest and the lower rate of corporation tax were substantially outweighed by the receipt of taxable income from the company”. He did not see the obtaining of any “tax advantage” as being a main purpose of the arrangements. They remain optimistic that P118 and CB will succeed in resolving the ongoing HMRC issues, enabling them to manage their portfolio flexibly and commercially.

(5) They thoroughly researched HMRC manuals to ensure they qualified for the relevant reliefs and were impressed by P118’s corroboration of their understanding. P118’s guidance gave them confidence in moving forward with incorporation. They relied on the professional advice from CB, whose experience in defending over 20 SIS enquiries gave them further reassurance that the structure was legally and commercially sound.

247. Mr Bhullar gave the following evidence at the hearing:

(1) The delay in incorporating was due to having to be in business in a partnership for a number of years to get the various tax reliefs. He discussed limited liability with the accountant, who always said, “try to protect it” and that a company would ring-fence liability, for example, if there was any action by a third party such as if the tenants are doing something illegal or wrong at the property. When SIS was implemented, they mentioned to all the tenants that the rent would go directly to NewCo.

(2) As regards succession planning, he said in effect that he thought that using a company would make sure the ownership goes smoothly in case he and his wife died so that their sons could have an interest and if someone wanted to sell they could do so. He thought it is “clean” and there will not be any family feud afterwards.

(3) As regards the CGT charge on the latent gain, at the hearing it transpired that in fact his 50% share of the CGT charge was covered by brought forward losses. He was cross examined about this discrepancy in his evidence and HMRC submitted that he was not a straightforward witness. We do not accept that this casts doubt on Mr Bhullar’s honesty. The discrepancy appears to be an error in the wording of the witness statement or a misunderstanding of the CGT system. We note, in particular, that having examined the transcript it is clear that Mr Bhullar volunteered the information that his wife was liable to 50% of the total charge, his wife’s charge was paid but he had capital losses so that took care of it.

(4) He initially seemed to say that section 24 did not feature in his thinking when he decided to incorporate his property business but then said it was one of the factors and the “whole aim of it, if someone is running a business, is how to minimise the taxes, not to avoid, to minimise taxes and find, within the legal system or within an existing the financial act, if that is okay, do that”. He said that the tax rate benefit did feature in his thinking when he was deciding to incorporate: “My aim was, and still is, for our business really, how I can grow it and how I can minimise taxes, and then re-invest within the business…. Grow it or, since the rental market is becoming very, very competitive now, to upgrade the current properties.”

(5) It was put to him that his comment in his statement that: “We intended to extract most, if not all of the profit each year from the company by way of taxable income” is incorrect in light of what he had just said. He said, in effect, that was not incorrect; that was the intention but in reality then “you see what are your, the current circumstances, what you’re going to do”.

248. Mr Holmes-Rogers gave the following evidence in his witness statement:

(1) He and his wife are landlords of ten properties, held through their company, HLR Properties Limited. They have always managed tenants directly, and he is now a full-time property landlord. Following a huge amount of thought and deliberation, they slowly took steps to professionalise the business, initially by creating a partnership and in 2021 by incorporating using SIS.

(2) The decision was driven by wishing to run a professional “proper” business, in the eyes of colleagues, agencies, contractors and tenants. It also became increasingly clear during their partnership period (2017 to 2021) that lending criteria to larger portfolio individuals for personal BTL was becoming more and more difficult. Mortgages for corporates, whilst then almost 1% interest point above personal BTL mortgage rates, had much more attractive lending criteria, focusing on rental ratios (which they always covered comfortably) rather than personal incomes from salary which were becoming smaller as he reduced employment to part-time, to spend more time running the business.

(3) The creation of a company also provided a structure and opportunity for succession planning which they have done; their three young children are shareholders who can seamlessly become actively involved and/or take over the business should they wish to in due course. The corporate structure avoids needing to change ownership of /sell each property to their children when the time comes. They have created a discretionary trust to loan them money as and when the company is wound up. This lending, as opposed to giving, addresses the significant risks of losing family money during a divorce, or inadvertently disinheriting the children if remarrying without updating wills.

(4) SIS enabled them to achieve incorporation immediately in one step, get the job done and allow them to refocus on the day-to-day management of the business and to make it grow. Crucially, SIS allowed them to defer refinancing of each property until the end of each fixed mortgage deal; each deal having been very carefully selected after exhaustive analysis at the time. To spread risk, they had mortgages with multiple different lenders, having used a total of ten different lenders by 2021. The idea of having to refinance the whole portfolio in one go was unthinkably complex and stressful, and breaking existing fixed periods would have triggered prohibitively expensive early repayment charges. At the time they incorporated in March 2021, all but one of their properties had a mortgage with early repayment charges, six of them with the same lender (TMW). At this time, across the six TMW mortgages there was a balance outstanding of just over £1,321,000 and the early repayment charge was 5% of the sum outstanding; so it would have cost them over £66,000 to redeem just those six those mortgages. SIS avoided immediate refinancing and has allowed them to refinance each property as each individual personal deal has come to an end, giving them the time and resources to seek out and secure the most favourable deals available at the time. SIS enabled them to retain existing financially attractive mortgages and defer the cost, hassle and workload of transferring legal title until later. SIS offered the ability to defer the fulfilment of the indemnity of each property by reuniting legal ownership with beneficial ownership and securing new financing in the company name and so on, but at a time that was commercially viable to them; be that availability of time, finances or commercially attractive loans. This ability to retain control of their business and essentially do one property at a time and do things at their own pace has been invaluable for their own sanity and the way that they wished to run their business.

(5) There were certainly tax reliefs which existed and were important to making the incorporation financially feasible. However, these were not the primary reasons or rationale behind using SIS. The primary reasons are as set out above.

249. At the hearing Mr Holmes-Rogers gave the following evidence:

(1) He confirmed that he used CAR as well as SIS.

(2) There were multiple reasons beyond tax for incorporating, although it would be disingenuous to say that tax did not feature. He said that the effect of section 24 was not material to his decision to incorporate as he and his wife have never been higher rate earners so that there was no immediate benefit. Their incomes were quite modest, and they were getting lower as they transitioned from their “day job” to work on the property business. So the lending certainly got difficult. He agreed that in his statement he was essentially making the same point as Mr Alexander had about financing. He accepted that the change in the lending market he referred to in his statement was, in a way, a function of the change in the tax legislation.

(3) He said he was broadly familiar in general terms with how IR works. There was no need to think about whether refinancing would jeopardise IR because that was not an option for them. There was no way that they would have been able to get a loan to do that. If they had broken their existing mortgages early, there were quite high penalties. He understands the effect of IR but they did not latch on to it at the time because they never had a desire at all to sell properties. So it did not feature in any conversations that they had.

(4) As regards the commercial reasons for incorporation, he said that he made a very strategic decision when he acquired his first property that income from that was going to be his pension. Hence, they started to operate a property business and over time running that has become their work. Then he wanted to turn the business into a going concern which he and his wife can pass on to their children. He had always considered this as a very long-term enterprise which required selling and buying other properties. His understanding is that limited companies provide a much easier vehicle or wrapper around the business to enable it to be passed on ultimately to their children. Their company has different classes of shares including “growth shares” and they set up the discretionary trust with the idea that it gives options and flexibility. For example, they could at some point wind down the company, everything would then go into the discretionary trust and there would be an element of safeguarding that money for their household indefinitely by loaning money to children in the future, and having the advantages that it might not be lost during divorces, or “unintentionally disinherited”. The real attraction of a limited company for them is that it provides a flexible structure as he had described and they could bring people in to have shares or take away directors or change things. His children are under 18 and they do not make enough money for any of this to be actually actively used. He hopes that one or two of them might be interested in becoming actively involved in the property portfolio but does not know if that will happen.

(5) In re-examination he said, in effect, that he did not really have a sense of how easy or difficult it would have been to put fractional shares of the properties into his children’s hands if he had not incorporated. He thought it may have involved them in owning properties.

250. Mr Panchal gave the following evidence in his witness statement:

(1) He and his wife operated a property investment business in a partnership, which they incorporated in the 2019/20 tax year when the properties had a gross value of £3,735,000 and the business comprised of one commercial industrial unit and 12 rental houses. They decided to incorporate their property business using P118’s SIS following discussions with P118 and advice CB and their accountant, his specialist tax colleagues and a lawyer they had recommended. The starting point was working with their P118 consultant and their accountant to create a balance sheet for the business. They spent several weeks researching the acquisition costs of each of their properties and establishing the current market values with the assistance of the P118 consultant and their accountant. They had invested significant capital in the business and used taxed profits to grow the business, but they needed to evidence the exact amount, which they all ended up agreeing was positive capital account balances of £1,574,500 plus an additional £1,954,500 in unrealised capital gains. They had only one comparatively small £206,000 mortgage with Santander, so the section 24 restrictions on finance cost relief barely affected them.

(2) Their primary motivation for incorporating their property business was for family reasons. The FIC structure offered allowed for them, as they had reached retirement age, to incorporate the property partnership and to create “growth” shares which they have subsequently put into trust in order for any future growth in the value of the business to be held for the benefit of their bloodline only, without giving them direct access to wealth immediately. They decided to freeze the value of their own shares at the point of incorporation for the same purpose. This meant that any subsequent increase in the value of the business stays within the family bloodline and should reduce the risk of leakage if one of the children was to divorce.

(3) Further, a limited company provides much better flexibility for transfers of shares than a partnership. Also, a limited company afforded some further commercial protection with the limited company wrapper (over a partnership) against an uninsured claim from a tenant.

(4) They had only one mortgage at the time, so refinancing or paying that off was an option. However, transferring legal ownership of so many properties and the challenges that entail was not palatable as regards the simultaneous conveyancing of all properties, creating new tenancy agreements, protecting all 13 tenancy deposits, and re-applying for new “Selective Licences” and additional “HMO licencing”.

(5) They were assured by P118 and CB that IR would be available. They could no longer offset the full costs of finance against rental income without moving into a corporate structure. However, that was not the main benefit of incorporation for them for the reasons explained above. CB also appeared to have the necessary legal expertise to deal with the legal paperwork to facilitate the incorporation process that their previous lawyer did not possess.

(6) While he acknowledges that the rollover of capital gains on incorporation made incorporation financially feasible, the commercial and other commercial benefits of SIS as set out above were the primary motivation for using other commercial benefits of SIS

(7) P118 also recommended that they withdraw the value of their positive capital account balances which came about as a result of capital they had introduced and from post-tax profits resulting from the business, which they had invested into purchasing further rental properties. The tax on this money had already been paid. However, the cash was not available for immediate withdrawal because it had already been invested in property, thus presenting a very short-term cashflow problem. P118 recommend that they take out bridging finance for CAR. Their accountant attended meetings with them and P118/CB about this aspect and was happy with it. He telephoned several finance brokers and bridging finance companies in an attempt to find cheaper short-term finance than was being recommended by P118, but none of them could improve on the quotation P118 had sourced. The new financing arranged matched the positive capital account balance and was withdrawn prior to incorporation solely to preserve access to funds previously taxed as income or capital contributions. All capital gains in properties owned by the business remained in the business and were exchanged for shares at the point of incorporation. These steps had no net impact on tax outcomes and were solely about protecting their access to previously taxed capital. Had they not done that, their positive capital account balances would have become locked into shares and the only way they could have accessed it would have been to take salaries or pay dividends, assuming the company had sufficient retained profit or to sell some shares.

(8) At the hearing he gave the following evidence:

(a) His NewCo had “growth shares”, which he put into trust for the benefit of his children. He accepted that the idea behind the “growth shares” was that (a) any increase in value in the properties would kind of flow into them, and (b) this would have inheritance tax advantages in that if the properties increased in value, the growth in value would not be in his estate, but in the discretionary trust, which was for the benefit of the children. He also said that one of the benefits of this trust arrangement was that it would protect assets, for example if one of his children got divorced. The main benefit was that it was better to have assets in a trust rather than giving property outright to his children. The other most important benefit he looked at was the limited liability factor, having had a really bad experience with one of his tenants a few years ago, where even though he did nothing wrong, the tenant went after him and, he lost a lot of money rental-wise, legal-wise, and all that. So he wanted to limit his liabilities. He said that a limited company provides much better flexibility for sales/transfers of ownership by transfers of shares in terms of cost and the work involved compared with sales of properties/partnership interests. Shares are a lot easier option to pass on to the next bloodline. When it was put to him that he could just have given individual properties to his children or put them in the trust, he said that there would be a lot more expenses involved, time and lots of legalities.

(b) He did not accept one of his purposes in incorporating was to avoid the effect of section 24. His main objective was for limited liabilities and for family reasons. The tax situation was a factor but not the main factor. He initially said that the tax rate benefit was not a factor in his decision to incorporate but then said “you’re running a business and you’ve got to run it the most viable, efficient way, abiding by all the tax rules and the law rules. As far as I was concerned, I wasn’t reducing, or not trying to pay less tax, or avoiding, tax avoidance.” When pressed he said this was a minor factor.” It plainly was a factor.

(c) When asked if he was aware that if refinancing had occurred at the point of incorporation, that might have jeopardised the availability of IR he said his thought was not for that because he did not want to change anything. He was not going to take any funds out of the company or sell any properties. Everything remained as it was. He thought he was aware that if IR did not apply on incorporation there could have been a CGT charge without funds available to pay it. He then accepted that he might have been aware that if he had refinanced at the point of incorporation, the availability of IR might have been jeopardised. He confirmed that he was aware that one of the attractions of SIS was that he did not need to refinance at the point of incorporation.

(d) As regards his calls to brokers, they did not tell him what period they anticipated the bridging finance would be for, but the cost involved and the setup cost to do that would be quite lengthy, and horrendous costs would be involved. So CAR was the best option. He accepted that those brokers would have been looking at arrangements which involved security, because the funds would have left the lender’s control. He accepted that the other brokers he spoke to about alternatives to the bridging finance, were probably giving him costs associated with a very different type of lending to that offered through P118, which would have been outstanding for maybe three or six months and which would have involved security arrangements. It was put to him that in light of that it is not surprising that the pricing that he was offered was very different. He said: “Well, I just thought it’s the best viable, sensible way to go forward with that, instead of incurring extra costs, extra headaches, really, to put it easily…”. He confirmed in re-examination that he did not explain to the brokers when getting quotes how long the funding was needed for. He said that was not discussed at all.

251. Ms Jackie Prescott gave the following evidence in her witness statement:

(1) She is a landlord with a property portfolio consisting of 9 student houses. At the point of incorporation there were 10 houses, but one was subsequently sold. She and her business partners decided to incorporate their property business in 2022 and selected SIS to do so. It was clear that that the mortgages would come to an end and they would find it difficult to remortgage as they had turned 60. The net effect of this would be that most of the houses would have to be sold which meant effectively dismantling the business. She needed a solution as the investment into the properties was effectively pensions for her and her partner and they needed the business to remain commercially viable for the long term. There was no commercial reason to stop trading and she didn't want to have to sack anyone. Her partners did not have sufficiently good personal credit ratings to raise mortgages.

(2) Her broker told her that mortgage lenders had more relaxed age restrictions for limited company mortgages than personal BTL mortgages and they offered higher loan to value mortgages, so incorporating seemed like a good way to forward. It would have been difficult to do this if it triggered capital gains and they obtained IR. The existing mortgages were on commercially favourable interest rates such that it did not make sense to refinance until (a) interest rates were more reasonable, and (b) the current mortgage term was coming to an end. By incorporating using SIS, mortgages in the company could be refinanced when it made commercial sense to do so. At the time their mortgage lender did not have mechanisms in place to transfer the loans to limited company mortgages. P118 advised that if they took new mortgages to repay existing BTL mortgages on incorporation, they might not have been able to benefit from ESC D32. If that did not apply it would have been prohibitively expensive to incorporate. She felt a corporate structure would also provide flexibility regarding remunerating and working with her partners due to some difficult circumstances between them. Incorporation “replaced the outgrown partnership, whilst allowing these parties to continue to have the time and effort they had invested, reflected in the form of shares”. Her daughter, who had always worked with them as she was growing up, was also able to become a shareholder - with the option to take over the business as time progressed. She was advised by P118 that on incorporation CGT would be payable on a “latent gain”. After incorporating, she sold a house to pay over £120,000 of CGT on this latent gain.

(3) She chose SIS because of the commercial advantages it offered over other incorporation methods, including (a) the ability to avoid immediate refinancing of properties: This would have incurred additional costs and complications at the point of incorporation. Apart from the very intrusive time commitment that would be required to remortgage her mortgage broker advised that she should expect to pay 8% to 10% of the funds raised for legal fees, mortgage fees, valuation fees, disbursements, etc amounting to a further £250,000 or so in fees, and they would have been saddled with significantly higher mortgage interest rates, (b) SIS allowed her to defer the decision to refinance her properties until a more commercially advantageous time and avoid the risk of being forced to accept unfavourable mortgage terms.

(4) At the hearing:

(a) She said that section 24 was definitely a factor in her decision to incorporate. From her perspective, having a limited company is more expensive, because there is corporation tax and personal tax. She added that there is no point in having a company if one does not take a salary or dividends. She needs all her money to live. In fact, it is quite disadvantageous for her to some extent, having an income from the company on that basis.

(b) She confirmed she was aware of ESC D32 and that her understanding was that refinancing on incorporation could have jeopardised the availability of IR. She said that her mortgages were cheap and mortgage interest rates were horrendous at the time, so commercially it was not a good idea to refinance anyway. If she had not benefited from IR that might have made incorporation unfeasible for her, because then she would have had to sell properties and reduce profits and sack people, and that is not really the avenue she wanted to go down.

(c) She said that at the time she was not aware that one effect of IR is that following incorporation NewCo can sell a property and not pay tax on the accrued gain. She knows that now. She noted that when she paid CGT on the “latent” gain, she sold a property to pay the tax that she owed but she then had to draw funds out of NewCo and ended up paying “recursive tax”; so she drew money out, paid tax on it, but to pay that tax, she had to draw more money out and so on. She knew that she had to pay the latent gain tax when she incorporated but she did not quite understand about recursive tax.

252. Ms Jane Breakell gave the following evidence in her statement:

(1) She is the Director of Breakell Properties Ltd. Prior to incorporating, she managed a property portfolio consisting of 15 properties in Bournemouth. At the time of incorporation, she had borrowings of £1,607,186 secured on the portfolio split between three different lenders generally at beneficial rates of interest. She incorporated her business in September 2021, adopting SIS and CAR based on the advice and recommendation of P118.

(2) The decision to incorporate was driven by long-term commercial reasons. Primarily, she wished to limit her personal liabilities and ensure a more structured framework for the future of her business. As her children were completing their degrees, she wanted to create a corporate structure that would allow for easier expansion of the business and a smooth transition of ownership, enabling her to retire in due course.

(3) Furthermore, section 24 placed individual landlords at a disadvantage when compared to corporate landlords, making it commercially unviable to continue purchasing properties in her personal name. The advantage of not being subject to section 24 was virtually eliminated when it came to extracting funds from the company as dividends or as director’s fees.

(4) She chose SIS to minimise disruption to her existing mortgage agreements and avoid significant financial penalties and administrative costs. She intended to sell underperforming properties and did not want to trigger early redemption charges by entering into new mortgage agreements too early: (a) several properties were secured on mortgages with highly favourable rates, which she could not replicate through remortgaging, (b) the administrative costs of remortgaging all properties simultaneously, including solicitor and mortgage fees, would have been prohibitively expensive, (c) coordinating completions for multiple properties on the same day would have been extremely difficult, if not impossible, considering the number of properties involved. These commercial justifications were fully validated in 2022 when interest rates increased sharply. She then remortgaged five properties that had tracker mortgages and replaced them with fixed-rate company mortgages with mortgage and legal fees exceeding £20,000. Had she attempted to remortgage all of her properties at once, the costs and practical challenges would have been even more prohibitive. SIS allowed her to manage these issues effectively.

(5) She was reassured by Mr Alexander that P118’s early clients had obtained Statutory Clearances for the SIS method and that multiple HMRC investigations into SIS had been closed with no further action. This demonstrated to her that the structure was commercially sound and acceptable to HMRC.

(6) At the hearing, she said that (a) one of her reasons for incorporating was to ensure a more structured framework for the future of the business and a smooth transition of ownership; she made both of her children shareholders, and, hopefully, when she retires, they will take over the business, so the properties would not have to be sold and repurchased by them, (b) she was looking at selling poorer-performing properties, and possibly purchasing better-performing properties and the only way to buy properties was in a limited company because of section 24, (c) that, where IR is obtained, the company can sell a property after incorporation without paying tax on the accrued gain was one of the factors in her decision to incorporate, (d) she was usually not a higher rate taxpayer at the time, (e) she was not aware at the time that if she had refinanced her mortgages on incorporation, that might have jeopardise the availability of IR. She said that there was huge expense in remortgaging and issues with timing that would have made it tricky. As set out in her statement, she had very good mortgages at the time, which she knew could not be transferred to a limited company, and she did not want to let go of them because they were very favourable rates.

(7) As regards CAR, she understood that the effect was to give the CAR tax benefir. She said that in effect she had already paid tax on the relevant sums and “that was money I lent to the company. It wasn't the company's money to start with.”

253. Mr Jason Abbott gave the following evidence:

(1) He is a property investor with a portfolio of 14 properties. He incorporated his rental property business on 8 January 2021. The decision to incorporate the entire portfolio was based on several commercial factors but particularly to facilitate the smooth transfer of all properties into a limited company while retaining existing mortgage terms where appropriate. SIS enabled him to incorporate the business without having to refinance immediately, allowing him to benefit from the flexibility to manage the properties effectively within the company.

(2) In his statement he said he used SIS for all the properties transferred on the incorporation but at the hearing it transpired that he used SIS for only one property. Mortgages relating to several properties with Paragon Bank were novated to NewCo with Paragon’s consent and the legal title of these mortgaged properties was transferred to NewCo at the same time. He also transferred legal title to NewCo for those properties which were not mortgaged. The other lenders would have required the repayment of the existing borrowings and the taking out of fresh borrowings by NewCo, at considerable additional cost. CB undertook the legal work required as regards the novations.

(3) He set out in his statement that one property was a mixed-use property with an expired lease for the commercial unit (a shop) downstairs and a tenant who was holding over. They were unable to secure refinancing due to the absence of a valid lease agreement. SIS allowed the property to be incorporated without triggering the need for immediate refinancing, enabling them to preserve the mortgage terms and address the lease issue later. Had they been able to remortgage, the cost would have been approximately £10,000 in mortgage product fees, legal fees, valuations and associated costs, plus the typically higher limited company mortgage interest rate would have been unsustainable.

(4) As regards his reasons for incorporation, he made the following main points at the hearing:

(a) His father got him and his sister involved in property in their early 20s in the early 1990s. The properties were bought in their own names. They then steadily grew that portfolio. Around 2014, there were changes happening with lending, they went into semi-commercial properties, so their risk was different, and by then they had two children, who were growing up, and he wanted them to follow in the family footsteps. His daughter has followed into the business. He and his sister wanted to structure the business in a way that would allow for some future planning to take place in a better manner than they would if they continued to own properties in their own names. They were also interested in growing their portfolio, and so being able to retain profits was one of the considerations. He said initially that another reason was to streamline the operation of four business entities but it became clear that only properties held in the partnership with his sister were subject to the incorporation. He confirmed that they did not use the “smart” property company structure as such but that they had different classes of shares to allow for different payments to different persons as he and his sister have different roles in the business and he and his wife do different things. He said that the thinking was that the children might have shares with particular rights but that has not been developed; it is a possibility for the future. He likes the idea that they have the opportunity, if they want, to join the family business.

(b) He agreed that when he incorporated banks were becoming stricter in their lending criteria, in lending to individual landlords on residential property and said that limited company finance was becoming more prevalent. He said that the effect of section 24 “was part of the mix of reasons [for incorporating]…that was obviously a factor. It affects everybody who has to think about these things”.

(c) He agreed that section 24 had an impact on the lending market in that banks effectively needed to have a greater ratio of income to mortgage expenses when lending to individual landlords compared to when lending to company landlords. He said that the impact of section 24 had an effect on affordability for them and many landlords. He did not accept that section 24 was a key factor in his decision to incorporate. He said that he got considerably far down the route of incorporating their other partnership which owns commercial property but he was advised by his tax accountants to not proceed on that until there was some clarity around what the actual situation is with IR relief regarding novation of debt. His sister and his other partner in that, his father’s wife, are very risk averse. They did not want to get another discovery assessment. It was put to him, in effect, that the reason he did not incorporate this partnership also in 2021 is that because it involves commercial property section 24 was not in point. He said that at that time there were other reasons why they did not incorporate that partnership (as he set out in some detail) but they started looking at the incorporation of the commercial partnership a bit later but pulled back from it because of the current situation as explained.

(d) He confirmed that he is sometimes in the higher rate tax band and that he is aware of the tax rate benefit. He said “when you draw the money out it doesn't always add up to being a financial benefit, if you’re drawing money out, or you’re taking wages on top of corporation tax”.

(e) He accepted that CAR enabled him to draw money out from NewCo without an additional layer of personal income tax. He said that that is money that they had already been taxed on when NewCo was incorporated. He said that the lower rate of corporation tax and obtaining IR were not factors in his decision to incorporate. The reasons for incorporation were as he had set out above: “legacy planning, the reduction of all businesses down to two, retaining profits for further investments”. He accepted that the point on retaining profits is that monies in NewCo would be subject to the relatively low rate of corporation tax, and he can then use that money to grow and perhaps buy further properties – unless they withdrew the funds.

254. Ms Deborah Brown gave the following evidence in her statement:

(1) She and her husband are landlords with a property portfolio consisting of 11 self-contained flats in three houses located in Plymouth. They developed their rental business over the years to serve as their pension. Over the years, they had been following P118. In 2017, they transitioned their property business to a formal partnership. In 2019, they decided to step back from other businesses they ran due to age but retained full interest in the rental business. They have no mortgages on any of their properties. The decision to incorporate, which was implemented in 2022, was motivated by several factors, including:

(a) Tidying Business Affairs: Incorporation allowed them to clearly separate their rental business from their personal affairs, ensuring smoother management and greater business flexibility.

(b) Succession Planning: They wanted to create a structure that would make it easier for their children to take over the business in the future and with the potential to sell older properties and reinvest in newer, more easily managed properties. They remain active in the business, although they intend to start the process of succession by gifting shares to their children shortly.

(c) Capital Account Restructuring: The ability for their unincorporated business to raise liquidity enabled them to withdraw their positive capital account balances (previously subjected to taxation) prior to incorporation, and so preserved access to their already taxed capital post incorporation, and allowed them the choice of if or when to take that capital back when there are surplus funds in the company. They could not afford to lose access to their previously taxed capital by locking it into the company, especially as they may need it for long term care or due to ill health, given their ages.

(d) No Other Viable Methods: They explored other methods for incorporation, but none were commercially viable for their situation. SIS/CAR offered the control and flexibility they needed for the business transition, executed by an experienced team with a proven track record.

(2) Commercial Benefits of SIS/CAR: SIS/CAR offered several key commercial benefits, including:

(a) Documentation and Simplicity: Since they had no mortgages, the incorporation process was relatively straightforward. Property118’s experienced team guided them through every step, from valuations to capital account structuring, ensuring that all documentation and audit trails were in place.

(b) Land Registry Transfers: After incorporating on 7 February 2022, they immediately instructed that property ownership be updated at the Land Registry, which was completed later, successfully.

(c) Experienced Team: They had their accountant review the process, and they were reassured by the experience of P118 and CB, who had worked with SIS clients to satisfy HMRC on a number of compliance checks.

(d) Hands-On Management: Post-incorporation, they continue to be hands- on landlords, investing time and energy into managing our properties, ensuring high standards for their tenants, and handling all aspects of financial management and business planning.

(3) After careful consideration, SIS/CAR was the only method that provided the commercial flexibility and control they needed to successfully transition their rental business into a company. The commercial benefits of SIS/CAR, particularly the ability to tidy their affairs, to enable succession planning, and to withdraw surplus funds flexibly, were the main drivers behind their decision. While protection from an immediate charge to CGT on incorporation was not an unimportant factor for them, it was certainly not their primary motivation as they wanted to sell existing properties to buy newer, more easily managed properties elsewhere and maintain the business. They are aware that no CGT is payable on death.

255. At the hearing she gave the following evidence:

(1) She was asked why tidying their business affairs was important to them in 2022, but apparently was not any previous time since she started the property business in1998. She explained that (a) she and her husband had both worked abroad as professional engineers and became landlords initially somewhat accidentally. Over time, they started to view their rental business as generating their pension, and (b) from 2012, if not earlier, they became aware of P118 and the guidance that they were giving to landlords, when regulations were changing all the time. On their advice, given sometime between 2012 and 2017, they became a partnership. P118 said: “Put your affairs in order, become a partnership and three years later, you can incorporate.” She did not know if waiting three years was to do with obtaining relief from SDLT on incorporation.

(2) As regards business flexibility she said they were looking to the future when they would not be earning professionally, and the rents would be their pension. She understood that by having a company, they were able to sell the properties and rebuy properties nearer to where they or their children are, who might be able to take over in succession planning.

(3) Ms Brown did not appear to have an understanding of the IR position as regards accrued gains or the CGT position generally. She said that they just wanted to sell a property and buy another one, to reinvest in that way. When it was put to her that she could do that if she owned the properties in her own name, she said she thought there would be a CGT charge in that case. When pressed, she said she could not comment as the intention was to keep properties as long as they were alive but to hand over to their children. It was put to her that she had said her plan was to sell and buy new properties. She said that was the idea but they have not done it due to circumstances but it was very important for them.

(4) As regards succession planning, she understood that they could bring their children into the business by giving them shares, and that they would be able to take it over. She confirmed that they have not given shares to their children yet due to their personal circumstances and they have been perplexed by these proceedings. She maintained that it was a key consideration when the incorporation took place notwithstanding that it had not subsequently taken place.

(5) She said that the effect of section 24 was not a factor in their decision to incorporate as they had no mortgages. She was aware of this and this was one of the matters of flexibility, that if they needed money quickly, they could raise it on a mortgage without any restriction on the deductibility of finance costs under section 24 but they have not done so. The tax rate benefit was not a factor in their decision because she and her husband have always been lower rate taxpayers.

(6) When they were going through the process of incorporation and all the time leading up to it, they were very hands-on and they intended to continue to be hands-on. The children had not at that time come into the business, as they still have not. The thinking was that they would not be able to manage the properties in Plymouth, and they would have to sell them and buy other somewhere more convenient so that the children could take over from them.

(7) She said that the fact that under CAR they could receive money from the company without personal tax liabilities on it, was part of the flexibility that the system has.

256. Mr Khanna gave the following evidence in his statement:

(1) He and his wife are long-standing landlords with a property portfolio consisting of four residential properties in the UK and one overseas. After conducting thorough research and consulting with their accountants, they decided to incorporate their property business which was conducted in a partnership in 2021, choosing SIS. Their decision to incorporate was driven primarily by commercial considerations, including:

(a) Long-term business planning: They wanted to ensure future business growth would not be impeded by any changes to their personal health or financial standing, and to make it easier for them to give their children an opportunity to join the business in the future by transferring shares in the company, which seemed a lot easier to do than transferring interests in their properties.

(b) Formalising their business partnership: Incorporation allowed them to formalise their partnership in a way that was transparent and flexible, offering a framework for their children to become involved in the future.

(c) Succession planning: They wanted to ensure the smooth transfer of ownership to their children without the need for complex legal restructuring or financial penalties.

(d) Liability management: They aimed to maintain favourable mortgage terms while ensuring the business could continue borrowing without being constrained by their personal financial circumstances.

(e) Inheritance planning: With further properties expected to join the portfolio in the company through inheritance, from his mother in law and from them once deceased, having a flexible company structure allowed them to streamline the process of inheritance.

(f) Business continuity and dispute prevention: Incorporating the business created a structure that would allow smooth decision-making and help avoid potential disputes among family members in the future.

(g) Flexibility with share classes: The company structure allowed them to introduce future investors and provided flexibility in apportioning income and capital gains among stakeholders fairly.

(2) Commercial Benefits of SIS: They chose SIS due to the distinct commercial advantages it offered over other incorporation methods, including:

(a) Avoiding immediate refinancing: It allowed them to defer refinancing decisions until a time when market conditions were more favourable. At present, they have reasonable terms with their two current mortgages and one benefits from a very favourable offset arrangement whereby the amount of interest charged is offset by any personal savings. They would have incurred significant costs as a percentage of the borrowings in moving legal title to the company as they would have lost access to this long standing mortgage arrangement. They were not keen to increase their borrowings simply to move financing which appeared to be the case if they had to move legal title at incorporation.

(b) Preserving current mortgage terms: SIS allowed them to maintain the existing favourable mortgage terms without triggering costly early redemption penalties, so preserving financial stability. They currently pay no interest on the offset mortgage described above as the full outstanding mortgage amount is offset by an equal amount of savings. This money is held as a “war chest” should they find new opportunities and would inevitably be diminished if theyhe were to refinance and probably at less favourable rates and terms.

(c) Succession planning simplification: SIS provided a clear path for transferring properties to the company and for future generations to enjoy the benefits of the business without the complexities and costs of immediate legal transfers or new mortgage arrangements.

(3) While statutory tax reliefs made the incorporation process more financially feasible for them, their primary motivation was commercial. SIS allowed them to structure their business in a way that was flexible, efficient, and prepared for future growth and succession. They spent several hours discussing their financial information with their P118 consultant before she prepared financial forecasts to demonstrate how incorporation would affect them. This research identified that the interest relief restriction for individuals in section 24 had no bearing on their decision to incorporate, as he and his wife were - and still are - basic rate taxpayers. It was identified that they may potentially save approximately £6k to £7k per annum by incorporating, which was primarily due to being able to retain profits in the company and it was not a significant driver of their desire to incorporate.

(4) Prior to incorporating, they relied on the rental income from their portfolio to support their lifestyle. Post incorporation, they continue to withdraw all profits from the company which are offset against their directors’ loan account balances. The actual profit withdrawn has varied since incorporation as considerable investment has been required for numerous properties. On average, approximately £4,000 is withdrawn per month. Once these loan account balances have been exhausted, they will take profits as a mix of salary and dividends. The capital gain rolled over into the shares they received on incorporation was approximately £917,000.

(5) They took advantage of novating a Bridging Loan to the company under CAR as they wished to maintain access to their previously taxed working capital in the business. This was to facilitate the withdrawal of their capital as and when they wished, without the need for the company to raise funds immediately and suffer the ongoing costs of servicing larger mortgages for example.

(6) SIS further facilitated their main objective in incorporating, as they would be able to gradually gift shares to their children without the need to constantly ‘divide up’ property titles. These commercial benefits offered by SIS were paramount in their decision-making. SIS provided the best overall solution for ensuring long-term business stability and succession planning.

257. At the hearing Mr Khanna gave the following evidence:

(1) He was asked how having a company made it easier to bring his children into the business. He said that is purely by dint of the fact that shares could be allotted to any of his three children at an appropriate time, depending on the children’ involvement or reduction in his and his wife’s activity within the business. But that would all be dependent upon the business’ progress later on. He said that the property portfolio, though quite modest, consisted of quite varying values and sizes of property, and it would have required some quite complicated kind of transactions to divide up the properties. Also, when they were incorporating, one of his children was only 14/15 years old, so she would have been unable to become a partner in the business. He understood from his own research prior to contacting P118, that profits from a partnership “pass through” and he wanted to ensure that he and his wife could continue to benefit from the rental income that flowed from the partnership at that time and eventually the business, until such time as they were ready for their children, or any other investors to become involved. He confirmed that the children do hold shares in the company which they acquired on incorporation and they carry rights to income. They have various classes of shares to enable them to decide how to disburse the income that will flow from the company. He confirmed that the company has “growth shares”, and “freezer shares” and he understands that this might have inheritance tax advantages. He said he was not just thinking of that though as he sincerely hopes that his children will get more involved in the business in which case the corporate structure would enable any input that the children provided to be formally recognised, either through remuneration or the transfer of shares.

(2) It was put to him that if his children fall out with one another, it would not be particularly helpful for them to be locked into a company where they have to work together. He said that shareholders do not have to work together as such because they are essentially holders of shares in a company; they might have to make decisions but, much as with a large plc, they can make decisions by proxy or independently of anyone else and they can also appoint a director or a managing director who does not have to be one of the children; it could be an external party such as an accountant or solicitor. Also if they do not want to be directly involved in the running of the business the structure would enable them to manage the business strategically or remain involved in the day-to-day business once he and his wife no longer are. It was put to him that it would be better for family harmony to keep properties in a partnership or perhaps to give individual properties to a particular child. He said, in effect, that would lead to the difficulty of particular children wanting particular property or properties. That is the kind of potential animosity, he wanted to avoid. So “shares are a quantifiable and equal item, I suppose, rather than something that the children might either disagree on value or have some greater emotional attachment to, and therefore want to possess themselves”.

(3) In general terms, he is familiar with IR. It was one of the factors that they considered when looked at incorporating. He thought that if IR had not been available there might have been a significant CGT liability on the incorporation and there would not have been funds generated by the transaction to pay that liability. He said that they had funds outside of the business that they could have used to pay any such liability. He knew these figures once they had their initial consultation with P118. That was partly the reason why they had the initial consultation; they wanted a formal set of figures that they could then work from objectively, to understand what their liabilities were, to help them make a fully informed decision about what path they should take. He said he did not fully appreciate at the time that if they had to refinance on incorporation, that might have jeopardised the availability of IR. He understands that now. He accepted that if there had been refinancing as counsel described, that would restrict the availability of IR, and using SIS prevents that risk. He said: “That being one of the factors, the far more overriding factors in terms of refinancing were that we have, and continue to maintain, very attractive borrowing arrangements on the two main properties that are out of the four that we have, at very low loan value. And so we absolutely would not have refinanced those mortgages anyway”.

(4) He said, in effect, that he understands that following incorporation, the company can sell a property without paying tax on the accrued gain but that was not a factor in his decision to incorporate. He confirmed that at all times since he incorporated, he has been a basic rate taxpayer.

(5) In re-examination (a) he said that inheritance tax was a huge factor in his decision to incorporate but even more so than that “succession planning such that the work that a previous generation has put in to help the next and subsequent generations is not undone ….the saving of the assets and the work put into produce those assets, rather than just mitigating inheritance tax”, (b) he said that the properties transferred on the incorporation did not have the same values and would not be at all easy to divide up between his children and when they incorporated one of his children was aged only 14/15. On the other hand they can gift shares as and when they are ready to do so, and when whoever is ready to receive them, (c) he had no intention to sell properties after incorporation apart from as he had set out in his statement, and (d) IR was important in the sense that it would not hinder their cash flow and would not require them to raise money or use any of their own capital to pay CGT. But in terms of the fact they could sell this property after incorporation and not have to worry about paying tax on any capital gain it was not really a factor. He was not interested in selling.

(6) Mr Smith asked him to elaborate on his reference to maintaining favourable mortgage terms whilst ensuring the business could continue borrowing without being constrained by our personal financial circumstances. He set out essentially what he said in his statement about the mortgages in place when they incorporated. He said that prior to incorporation, when they wanted to take out borrowing on their homes or as BTL landlords, the amount that they could borrow was based on salary, any personal debts and disposable income and, as his salary was modest, he was not able to borrow very much. However, where a company borrows against a company asset, the lender looks at the flow of income into that company and at that time his rental properties had a greater income than he did as a teacher. He understood, however that mortgage terms for BTL corporate landlords were not as advantageous as mortgages for individual BTL landlords but now things are beginning to level out.

258. Mr Paul Feeney gave the following evidence in his witness statement.

(1) He and his wife are landlords with a property portfolio (now held via their company, Birdwood Limited) consisting of 14 residential properties located across various areas. They decided to incorporate their property business in 2022 and selected SIS. Under a heading “Why I Chose to Incorporate” he said this:

(a) Succession Planning: His primary motivation was to bring his family into the business so that he could gradually step back after managing the portfolio for 35 years. His sons have expressed an interest in growing the business, and this method seemed to be the most straightforward way to involve them without the need for individual property sales or mortgage changes. His youngest son deals with all the property maintenance and tenant management when he is frequently unavailable

(b) Flexible Share Structure: The alphabetical share structure was an ideal solution for passing on the business in a way that reflects each family member's commitment and responsibility. This allows them to gradually transition ownership without disrupting the business.

(c) Limited Debt: Since they carry relatively little debt within the company, he has been contemplating whether to gradually sell the portfolio and retire or allow the family to expand and grow the business. SIS allowed them the flexibility to manage this decision over time.

(d) Statutory Tax Relief: While tax reliefs were not his primary motivation, IR made the incorporation financially feasible. IR enabled him to defer around £2,500,000 of capital gains by exchanging it for shares. Given the fact that prior to incorporation they only had £220,000 of mortgage finance outstanding on a business worth £3,850,000, the minor difference in tax treatment before and after incorporation had no bearing on his decision to incorporate. He thought that last year his company paid no less in corporation tax than he would have paid in income tax, had he not incorporated.

(2) Commercial Benefits of SIS: SIS allowed for the efficient transfer of beneficial ownership, without the immediate need to sell properties individually or change existing mortgage arrangements. Based on his own research and discussions with his P118 consultant at the time of incorporation, he understood that to refinance £220,000 with a lender who would offer novation would have cost him more than 5% of the loans in fees (more than £11,000). He had spent many years paying down mortgages with a view to being mortgage-free by retirement and therefore did not want to take any new mortgages just to incorporate. This structure therefore aligned perfectly with his goals of succession planning and long-term business management. The alphabetical share structure was key to ensuring that the business could be passed down to his family members in a way that reflected their respective roles and responsibilities within the company. Incorporating under SIS has provided him with a flexible, efficient, and cost-effective method to bring his sons into the business. This structure has allowed him to ensure the continuity of the business in a way that aligns with his long- term goals and those of his family.

259. At the hearing Mr Feeney gave the following evidence.

(1) He was asked why it is easier to give shares in a company to his children as opposed to giving them individual properties. He said that he could not gift them but would have to sell them and pay CGT and SDLT. He maintained this when counsel set out that it was possible to make a gift of property to children albeit that it may result in a CGT charge. He said with a company he could pass shares down to the children and they can take over the running of company and have the benefits of it which is a lot easier, in his mind. He agreed that he meant that gifting shares to his children was attractive because that CGT charge would not arise. He said he had tried to give shares in the company to his children but his accountant is unwilling to do anything until this case is resolved.

(2) He agreed that the thinking is that the increases in the values of properties might flow into the growth shares, and that might have inheritance tax advantages. He thought he was familiar with IR as counsel described it and it would be important for him to obtain IR in incorporation – it would be advantageous. He accepted that if IR was not available there probably would have been a potentially a significant CGT charge. He said he does not understand at all the point that if he had had refinance on incorporation, that would have jeopardised the availability of incorporation relief. He said he was very much relying on other people, on guidance. All the advice from all the accountants who advised him was that that it was better to incorporate if he wished to pass things down. He confirmed that when he incorporated, he was not a higher-rate taxpayer. He thought he was aware that one effect of IR is that, following incorporation, the company can sell a property and it does not have to pay tax on the gain which has accrued before incorporation? He said that since he incorporated, things have turned out to be a little more complicated than he thought, so he has not tried to sell any property, and for now he is just continuing the business to advance it as he intended. In re-examination he confirmed that all of his properties have different values but he has no mortgages

Section 3 – Conclusions on the reliability/role of the witness evidence and conclusions

260. HMRC submitted that the tribunal cannot be confident of the evidence of the individual witnesses for the following main reasons:

(1) Many of them had received or read the witness request or something similar and had seen the list of 23 benefits and this gave them a very clear direction from P118 to emphasise the so-called commercial benefits of the arrangements, and downplay the tax aspects.

(2) Whilst it is not clear exactly what the process was, the witnesses generally accepted that they received comments or suggestions from P118 such that it seems that the role of P118 was much larger than it should have been, as reflected in the substantial similarity of many of the witness statements.

(3) It is not known how these witnesses were selected from the very large group of hundreds or thousands of persons who utilised the arrangements, in particular, whether P118 operated a selection process by which it looked at what Users planned to say and then decided which persons to select.

(4) These issues are exacerbated by the fact that, given the lapse of time, many of the witnesses probably have no clear, independent memory of the reasons why they used the arrangements; it is striking that witnesses could not remember the process by which their statements were produced (which took place only 8 or 9 months ago) yet said they could recall with clarity events and thoughts from many years ago as to why they incorporated. None of them exhibited any contemporaneous notes or emails from the relevant time.

(5) Many witnesses wrongly considered that the outcome of this litigation will affect them personally and, whilst they said they recognised there are two distinct sets of proceedings, often their answers indicated that they did not really appreciate the distinction. The evidence is therefore lacking in objectivity.

261. From the evidence in this Part F, it is evident that the process by which P118 sought witnesses and assisted them with producing witness statements has fallen short of complying with best practice. Certainly, it appears that witnesses were encouraged to emphasise the commercial benefits of the arrangements. However, we accept Mr Alexander’s evidence that he did not intend to tell the individual witnesses what to say, or to ask them to give specific answers or to give false evidence, he did not ask them not to discuss the taxation benefits of the transactions and did not intend in any way to mislead the tribunal as regards their evidence. As shown in section 1 above, the individual witnesses were cross-examined on how they came to be witnesses and how their witness statements were prepared, in some cases, at some length. They were clear that, whilst they received assistance from P118 in preparing their statements, their statements reflect what they wished to say about the incorporation process and their reasons for using the arrangements. Moreover, they were all cross-examined, again in some cases at length, on the substance of their witness statements.

262. We consider that, in the circumstances, certainly we need to be mindful of the shortcomings in P118’s approach and adopt a particularly careful approach to the assessment of the evidence of each of the individual witnesses. P118 directed us to the decision in MacKenzie v Rosenblatt, [2023] EWHC 331 (Ch) in which it was clear that the witness statements of four witnesses were written for them by solicitors but the Judge nevertheless carefully evaluated their evidence by reference to their cross examination. That is the approach we consider is appropriate here. Hence, we have set out at length in this Appendix the evidence from each witness as regards all matters in each of their witness statements and the main points on which they were questioned and carefully evaluated the evidence of each of them on an individual basis. Overall, whilst a few witnesses were inconsistent or did not fully understand or were mistaken about the consequences of incorporation, we found the individual witnesses to be honest and credible. We have further evaluated their evidence in light of the other evidence as set out in main body of this decision.

263. We do not regard the other points made by HMRC as presenting material difficulties in assessing and/or accepting the evidence of the individual witnesses. As P118 submitted (1) as a party is free to adduce such witness evidence as it wishes to adduce, (2) HMRC did not challenge the memory of many of the witnesses and those who were questioned were insistent they did recall the events in question as these were important events. We find that plausible as the incorporation of a business is a significant matter of importance in a person’s personal and business life, (3) few witnesses were asked if they had referred to contemporaneous notes and, in any event, we find it unsurprising that Users had not kept records of conversations, and (4) only very few witnesses were unclear that these proceedings have no impact on their personal tax position as regards the arrangements and very few mentioned that they had difficulties in obtaining finance due to the issue of the SRNs.

264. HMRC submitted that an adverse inference should be drawn from the fact that P118 opposed HMRC’s request for copies of all written communications with their clients who were giving evidence, including tax calculations and marketing materials. HMRC asked for this on 1 August 2025. P118 took nearly a month and a half to respond by refusing the request on 8 September 2025. They stated that they estimated that it would take two full-time and one part-time staff between two and three months to identify and produce copies of such requested documents as are in P118’s control. HMRC said that is an obvious exaggeration and P118 made absolutely no effort to explore whether it might have been possible to provide some material, or to use narrower search terms, or to provide disclosure in relation to some witnesses. There was further correspondence in October 2025. HMRC submitted that by then it was not possible for HMRC to make an application for disclosure while retaining this hearing date, so, after careful reflection, they decided not to do so.

265. In HMRC’s view the inference must be that, (1) if there was contemporaneous material which supported the witness evidence, P118 would have provided it, or at least would have made a constructive response to the request and, (2) as P118 refused to make any attempt to provide it, they knew that it would undermine their witnesses’ evidence, and (3) that supposition is also supported by the fact that the relatively few contemporaneous documents in the bundles (such as the ultimate guide and the advice email and other marketing documents) are wholly inconsistent with the picture which witnesses have sought to paint. They are completely coloured by tax and references to tax. P118 had every opportunity to provide other material which would have changed the impression but has not done so.

266. P118 said that this inference simply cannot be drawn. In P118’s view, HMRC made a very onerous request that P118 and CBL disclose copies of:

“all written communications, including but not limited to client care letters, tax calculations and emails between either of them and the Clients relating to the Arrangements, including any marketing materials which may have been provided to Clients. If it is considered that any of [the information] is privileged, [so material privileged] please identify the documents in question and explain why they are considered to be privileged.”

267. P118 submitted that this was very onerous request of a company which had no business, given the issue of the two SRNs. It was a very difficult request to fulfil, and there was the issue of privilege. The law is complex in that area and clearly would not take a very short time to be dealt with. The original request from HMRC required the documentation to be produced within 28 days.

268. We do not consider that P118’s reluctance or refusal to comply voluntarily with HMRC’s disclosure request provides a reasonable basis for us to draw the inference which HMRC consider we should make. Plainly in litigation of this type, as regards the production of evidence there are questions of proportion and cost. HMRC’s request was broad ranging, P118’s reasons for resisting the request are plausible and HMRC chose not to pursue the matter. It is open to HMRC to make submissions, as they have done, as to the weight to be attached to the witness evidence in the absence of supporting contemporaneous documentary evidence.

269. There are five individuals (Mr Ward, Mr Blair, Mr Thornton, Mr Price and Ms King) who produced witness statements but did not attend the hearing to be cross-examined. P118 submitted that their evidence should be treated as hearsay evidence in accordance with section 2 of the Civil Evidence Act 1995. HMRC do not object to the admission of their statements as evidence but consider that no weight should be given to it. Section 4 of that act states that in estimating the weight to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence and regard may be had, in particular, to a list of considerations including: “Whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness”. HMRC submitted that for some of the witnesses the explanation is that they are away but there has been no explanation for Mr Price and Ms King. In their view, in any event the witness statements of these persons suffer from all of the problems that the other statements suffered from.

270. We have decided that given the difficulties with the witnesses statements produced in this case, we cannot put any weight on the evidence of the witnesses who did not attend the hearing for cross-examination. It is not possible for us to make any meaningful assessment of their evidence in these circumstances.