New announcement. Learn more

CHARTERED ACCOUNTANTS (ICAEW)

News and advice to help make your property business a success

Landlords TaxProperty TaxLandlords Tax ReturnsLandlords AccountsProperty Tax ReturnProperty AccountsLandlords FinancialLandlords AccountantTaxTax ReturnsVATChartered AccountantsOnline AccountantOnline BookkeepingOnline Tax ReturnsYour Online AccountantYour Online BookkeeperBusinessadviceHMRCAccountingNICSDLTDividendsExpensesFHLsPropertyCashflowInvestment Property TaxPAYEProperty AccountantSmallbusinessTax ImplicationsTax ReliefBusinesstipsCapital Gains TaxCgtFurnished Holiday LettingsIhtexemptionsIncome TaxInheritance TaxSole TraderTaxplanningCapital gains tax propertyGiftsHoliday Lets TaxISALandlord RepairsPensionProperty bookkeeperProperty LettingReliefTaxreturnVAT invoiceAgricultural Property ReliefAllowable Business ExpensesAnnual Exempt AmountBad Debt Tax ReliefBADRBenefits in KindBusiness ExpensesBusiness RateBusiness tipsCapital AllowancesCapital GainsCashbasisChild BenefitCommercial PropertyComplianceDeductibleexpensesDirectors LoansDisincorporationEmployment AllowanceFinanceFinancialmanagementFlat Rate SchemeHMRC complaintsLettingsMaking Tax DigitalMakingTaxDigitalMileage AllowanceMobilephonesMTDMTD UpdateNational InsuranceOverlapreliefPartnershipPartnershipbusinessesPayrollingPprProperty Company TaxProperty Tax Deductible ExpensesPropertyallowanceReimbursedexpensesRent a Room ReliefRentalResidence ReliefResidential property gainsSelfemployedSmall BusinessStamp dutyTax free incomeTimetoPayWorking from home60 day capital gains limitAbolitionclass2AccrualsbasisAcquisitionsADRAdvisoryfuelratesAIAirBnBAlphabet sharesAmapAnnual Tax on Enveloped DwellingsAppealAPRArtificial intelligenceAssessmentAsset disposalAssociated CompanyAssociated Company Tax RulesAutumnstatementBad DebtBaddebtsBadgesoftradeBeancounterBenefit ReliefBreakeven PointBudgetBusiness adviceBusiness asset defermentBusiness coachBusiness ContinuityBusiness EntertainmentBusiness RatesBusiness Rates ReliefBusinessgrowthBusinesstypesBuy or Lease EquipmentBuytoletCapital Allowances for CarsCapital GainCapitalallowancesCapitalexpenditureCar Capital AllowancesCarry Back LossesCashChange of Tax BasisChatGPTCIS SchemeClass 2 NICClass 3 NICCommon TenantCompanies ExpenditureCompanies HouseCompany Account DeadlinesCompany Account FilingCompany Strike OffCompany Tax Efficient PropertyCompanyassociationCompanyloanstaxfreeCompulsory Strike OffConstruction Industry SchemeContacthmrcContentmarketingContributionsCorporation Tax LossesCorporation Tax New RegimeCorporation Tax RatesCorporationTaxCostsCryptocurrencyCustomerlistimplicationsDeductible Business ExpensesDeductionsDeferring NICDemergerDepreciationDevelopmentDirectorsDirectorsloansDisallowable Business ExpensesDiscoveryDisposalsDispute ResolutionDividend allowanceDividend Allowance ReductionDividend PlanningDividendallowanceDLADomestic Items Tax ReliefDormantcompanyEISEmployee DiscountEmployee managementEmployeecompensationpaymentsEmployeeOwnershipTrustEmployers NICEndoflifeplanningEnquiryEnterpriseResourcePlanningEntertainmentEntrepreneurmindsetEquityExpenses Allowed For TaxExtrabenefitEyetestsFlippingFurnished Holiday Lets TaxGift AidGift AllowanceGrowthhacksHelp to pay tax billsHICBCHMO Licensing FeesHoldoverreliefHoliday Lettings TaxHome responsibilities protectionHow to apply for a Business LoanHow to Extract ProfitHumourHybridIllegaldividendsIncomeIncome and GainsInflationary GainsInfluencersInheritance Tax Nil Rate BandInterestInterest RatesInterestreliefInterestrestrictionInvoicingIR35Joint TenantKeypersoninsuranceLandlords Self AssessmentLate vat registrationLBTTLeadgenerationLeadmagnetLeanbusinessmodelLendingLetting Agent DisbursementsLetting Agent RecharresLettings ReliefLifetime LimitLimitedcompanyLiquidation DemergerLoanLoaninterestLong Lets TaxLongserviceLTTMainresidencereliefManaged LetsManagement accountingMaritalhomedivorceMarriage allowanceMarriageallowanceMileage paymentMinimumwageMixedusesdltMortgage costsMortgage Interest ReliefNew propertyNewcompanycarfuelratesNewnicrulesNIC 2023 to 2024NIC savingsNicdisregardNicreductionNMWNmwerrorsNon Allowable Business ExpensesNon-taxableNudgeletterOptiontotaxvatOverpayment ReliefOverseas propertiesPaperformPartnership schemesParttimePatternofoccupancyPAYE by Direct DebitPayrollPenaltypointsPension Payments Tax ReliefPensioncontributionsPensionsPerformance-reviewsPeriodofgracePeriodsofabsencePersonal AllowancePersonal ExpensesPersonal financePersonalallowancePersonalguaranteesPostcessationreliefPretradingexpensesProfitProfit-and-lossProfitAndLossProperty AllowanceProperty Development CompanyProperty IncorporationProperty Investment CompanyProperty investor accountsProperty investor tax tipsProperty Rental BusinessProperty TradingPropertycompanyPRRR40ReceiptsRecharges by Estate AgentsRefundRegularpaymentsRent your driveRentaroomResearch & DevolopmentResidentialsdltRetail stock controlRetainedprofitsRevenueRoom for rent taxRtiSASalarySalary SacrificeSavingsSDLT changesSection 455 TaxSection455taxSelective Licences LandlordsSelf AssessmentSelf-employednicSelling OnlineSelling your CompanySeperationServicechargesSettlementslegislationSimplified ExpensesSmallbizSmallbusinessratereliefSoftwareSpring BudgetStaffpartiesStarting a businessStudent Loan DeductionsSuccessJourneySurplus CashTax Allowance on DrivewaysTax AllowancesTax billTax BreakTax CodesTax DeadlinesTax DeductionsTax Filing DeadlinesTax Free ChildcareTax on Company VansTax positionTax RefundTax tips for landlordsTax-free savings incomeTaxbillpaymentsTaxconsequencesTaxincentivesTaxpositionTaxpositionassetsTaxreliefTaxreliefsTaxsesTerminationpaymentsTipsTrade professionalTrading lossesTrainingTransfer AssetsTransfer Assets Between SpousesTravelUmbrellacompanyUndisclosedincomeUnpaid RentVAT Bad Debt ReliefVAT DeadlinesVAT DisbursementsVAT flat rate schemeVAT PenaltiesVAT registrationVAT Reverse ChargeVatpenaltiesVatregisteredVatregistrationthresholdWellbeingYear End
TAGS

Beware property PM partnerships involving hybrid arrangements

Beware property PM partnerships involving hybrid arrangements

HMRC have recently published a spotlight warning landlords to avoid schemes offering hybrid property arrangements that purport to save tax. HMRC’s view is that the scheme does not work and landlords who are tempted by the advertised advantages might find themselves out of pocket.

Nature of the arrangements

The arrangements are based on the landlord or joint owners of the property transferring their property to a limited liability partnership (LLP) with a corporate member. The LLP allocates profits to members on a discretionary basis.

An LLP is a body corporate under the Limited Liability Partnership Act 2000. An LLP benefits from the flexibilities available to partnerships with the added advantage of limited liability for members.

Under the scheme:

·         the individual landlord or their family members, or both, set up a limited company;

·         the individual landlords set up an LLP alongside the limited company, which is considered to be the corporate member of the LLP;

·         the individual landlords transfer their properties to the LLP;

·         the members of the LLP (comprising the individual landlords and the corporate member) allocate the profits of the LLP on a discretionary basis ensuring that the individual members remain basic rate taxpayers and the remaining profits are allocated to the corporate member;

·         the corporate member claims a deduction for any mortgage interest and finance costs.

Claims

The scheme claims that by using a hybrid business model, landlords can:

·         escape the rules restricting mortgage interest relief for unincorporated landlords letting residential property, securing increased deductions for mortgage interest relief;

·         reduce the tax payable on the profits of the property income business;

·         reduce capital gains tax payable on any gain when the property is sold; and

·         reduce the inheritance tax payable on the landlord’s death.

Dangers

The scheme would be caught by existing tax legislation, meaning that the perceived advantages will not materialise. Landlords taking part in arrangements such as these may end up paying interest and penalties on top of the tax that is due, and also fees to the scheme promoter.

HMRC advise landlords who may have become involved in the scheme to withdraw from it and to settle their tax affairs. They should contact HMRC to make a disclosure. They may also want to take independent professional advice.

Scheme promoters must comply with the disclosure of tax avoidance scheme (DOTAS) legislation and ensure that they advise HMRC of any arrangements that they are marketing. Promoters are liable to penalties if they fail to disclose a scheme which falls within the scope of the DOTAS legislation. Penalties are severe, with initial penalties of up to £600 per day and possible penalties of up to £1 million.