The HMRC has issued a warning to property investors who acquire a property under a limited liability partnership (LLP), for a purported tax benefit. HMRC has the responsibility of ensuring that individuals and businesses in the UK pay the correct amount of tax.
Recently, HMRC have discovered various tax planning schemes designed to reduce tax for landlords. HMRC published their guidance in the beginning of October 2023, warning landlords of ‘hybrid business model’ schemes which sees individual and joint properties transferred to an LLP. This is done in order to by pass mortgage interest, reduce tax payable on profits generatedby the property business and to reduce Capital Gains Tax (CGT) payable when properties are sold.
The view of HMRC is that this sort of scheme does not work, they go on to state in their guidance, ‘People who use these arrangements may have to pay more than the tax they tried to avoid as well as paying interest, penalties, and high fees for using such schemes’.
If there are landlords who think they’re already involved in this arrangement and want to get out, HMRC can assist. The guidance says ‘HMRC offers a range of support to get you back on track or avoid being caught out in the first place.’ The advice given by HMRC is to warn landlords who use this scheme for a tax loophole is to withdraw from it; settling their tax affairs accordingly before it’s too late.
