Revealed: The Explosive Flaws Behind Property118's Tax Scheme Now Under HMRC Fire

In a shocking revelation on 6 October 2025, Property118's Family Investment Company (FIC) scheme, touted as an inheritance tax (IHT) magic bullet for landlords, crumbles under explosive flaws that invite intense HMRC scrutiny. Growth shares meant to shield future gains from IHT are undervalued at zero, exposing users to immediate tax charges and long-term risks amid rising tax avoidance concerns.

With 2025 data highlighting potential £170,000 ($261,000) upfront liabilities, this unregulated advice threatens financial ruin for property owners, as HMRC ramps up probes into similar avoidance tactics.

Valuation Errors: The Zero-Value Myth Exploded

Property118 promotes FIC schemes where parents hold 'freezer' shares capturing current value, while children receive growth shares for future appreciation, allegedly valued at zero to evade IHT. However, HMRC's valuation rules under the Inheritance Tax Act 1984 demand market-based assessments, not nil values, leading to significant discrepancies.

For a £5 million ($7.671 million) property business, a discounted cash flow analysis reveals growth shares worth £1.2 million ($1.841 million), after adjustments for risk and illiquidity, far from the promoted zero. This flaw triggers immediate chargeable lifetime transfers, with taxable amounts exceeding the £325,000 ($499,000) nil-rate band, resulting in 20% IHT hits that Property118 downplays.

Landlords face unexpected bills, as Property118's guide claims 'no current value' for growth shares, ignoring precedents like Lynall v Commissioners of Inland Revenue and recent HMRC warnings against undervaluation in 2025. Such errors amplify scrutiny, with HMRC issuing stop notices for related schemes, halting promotions and probing zero valuations over 20 years, as seen in cases where landlords incurred penalties for non-disclosure.

Additionally, general FIC guidance emphasises that minority holdings may qualify for discounts up to 75%, but Property118's structure often fails to align, exposing users to higher valuations and taxes. In 2025, these oversights have led to increased enquiries, underscoring the need for professional valuations to avoid costly mistakes.

IHT Charges: Immediate and Recurring Traps

Transferring growth shares into discretionary trusts incurs upfront IHT at 20% on values above £325,000 ($499,000), contrary to Property118's assurances of tax-free transfers. Trusts also face 6% anniversary charges every decade on asset values exceeding the nil-rate band, potentially £170,000 ($261,000) after 10 years, eroding wealth over time.

Property118 fabricates a 'determinable value' exemption to deny these, but HMRC guidance refutes it, valuing properties easily and applying anti-avoidance rules. If death occurs within seven years, additional tapered IHT applies, consuming nil-rate bands and risking double taxation if elections are missed.

These recurring risks, unmentioned in scheme promotions, expose landlords to penalties for careless reporting, as evidenced in tribunals like Lithgow. HMRC's 2025 advisories warn against such schemes, noting that capital gains tax may also arise on share creations, potentially held over but often overlooked in Property118's advice.

Furthermore, anti-avoidance provisions like settlements rules and GAAR must be navigated, as disbanded HMRC units found no widespread abuse but flagged specific flawed structures. In ongoing reviews, these traps have prompted landlords to seek disclosures to mitigate penalties.

HMRC Scrutiny: Avoidance and Regulatory Gaps

Property118's FIC scheme qualifies as tax avoidance under DOTAS, demanding disclosure to avoid £600 ($921) daily penalties, yet they claim inapplicability, risking severe fines. HMRC issued stop notices for related incorporations, halting promotions amid flaws like SDLT errors and CGT sidesteps.

Unregulated and uninsured, Property118 disclaims definitive advice, leaving clients vulnerable to 'careless' penalties and potential fraud allegations. An X post by Dan Neidle on 14 March 2025 states: 'They created/sold a scheme that had no realistic prospect of success. In my view, it's pure tax fraud.'

Despite 2026 regulations for HMRC-interacting agents, promoters like Property118 evade oversight, as noted in industry reports. Fieldfisher warns of CGT, SDLT, and IHT failures, urging disclosures to prevent enquiries. In 2025, these gaps fuel HMRC challenges, risking £100,000 ($153,000) extra taxes and witness tampering concerns in appeals.