Property 118 wins DOTAS appeal as tribunal cancels HMRC scheme reference numbers

The First-tier Tribunal has allowed appeals by Property 118 Limited and Cotswold Barristers Limited, ruling that two of their landlord incorporation arrangements are not "notifiable" under the disclosure of tax avoidance schemes rules — and cancelling the scheme reference numbers HMRC had allocated.

The dispute

In a decision released on 31 July 2026, the First-tier Tribunal (Tax Chamber) ruled in favour of Property 118 Limited ("P118") and Cotswold Barristers Limited ("CBL") in their challenge to HMRC. The case, reported as Property 118 Limited & Anor v The Commissioners for HMRC [2026] UKFTT 1111 (TC), turned on the disclosure of tax avoidance schemes regime, better known as the DOTAS rules.

The two companies had appealed against HMRC's allocation, notified to them on 9 February 2024, of "scheme reference numbers" (SRNs) under section 311 of the Finance Act 2004. The numbers related to two sets of arrangements: the "substantial incorporation structure" (SIS) and the "capital account restructure" (CAR). Both are ways of incorporating property investment businesses — businesses usually run as partnerships, often between a husband and wife — into a company.

How the DOTAS rules work

The DOTAS rules operate as a form of self-assessment regime for tax planning. Promoters are primarily responsible for identifying "notifiable arrangements" and telling HMRC about them. The broad purpose is to give HMRC early sight of arrangements it may have concerns about, so it can act to protect public revenue where necessary, and to put taxpayers on notice that HMRC may be interested in what they have entered into.

Where HMRC suspects arrangements are notifiable, it can allocate a scheme reference number. Crucially, an SRN is not in itself a ruling that a scheme does not work or that tax has been avoided — but it carries reporting consequences and signals HMRC's concern. On an appeal against the allocation of an SRN, the burden of proof sits with the appellant, applying the usual civil standard.

The central question for the tribunal was therefore narrow but important: were SIS and CAR actually "notifiable arrangements" within the meaning of the rules? It was common ground that both SIS and CAR were "arrangements" and that they had in fact been entered into, so the argument came down to whether they fell within the specific descriptions, or "hallmarks", that make arrangements notifiable.

The tribunal's conclusion

Tribunal Judge Harriet Morgan and Tribunal Member Jane Shillaker concluded that neither arrangement was notifiable. In their summary of conclusions, the tribunal decided that neither SIS nor CAR fell within description 5, that CAR did not fall within description 3, and that CAR did not fall within description 9. With none of the relevant hallmarks met, the arrangements were not notifiable, the appeals were allowed, and the scheme reference numbers were cancelled.

The hearing was no small affair. It ran across two weeks in February 2026, on 2 to 6 and 9 to 13 February, and involved extensive witness evidence — including from individuals who had used the arrangements and advisers who had guided them, as well as HMRC officers. Much of the argument focused on the "main purpose" test: whether an informed observer could reasonably conclude that the main purpose of the arrangements was to obtain a tax advantage, or that they would be unlikely to have been entered into but for that expectation. The tribunal found the appellants' witnesses to be honest and credible, while treating parts of HMRC's evidence about the officers' own decision-making as of limited relevance to the question it actually had to decide.

Implications

This is a significant win for the taxpayers, and a reminder that an SRN is a starting point in a dispute rather than the last word. HMRC allocated the numbers because it suspected the arrangements were notifiable; the tribunal, after hearing the full evidence, disagreed. That distinction matters for anyone who has received a scheme reference number and assumed it settles the position — it does not.

For landlords and their advisers, the decision offers some clarity about how incorporation structures interact with the DOTAS hallmarks, though the reasoning is fact-specific and each arrangement stands or falls on its own detail. It is also worth remembering what the case was, and was not, about: the tribunal was deciding whether these arrangements had to be disclosed under DOTAS, not delivering a final verdict on every tax consequence of incorporating a property business. HMRC retains other tools to test such structures. Even so, having the scheme reference numbers cancelled removes a real burden, and the judgment will be studied closely by promoters and property investors alike. As ever with tax litigation, there remains the possibility of an appeal to the Upper Tribunal.