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Following approaches by a number of landlords worried about the implications of HMRC’s Spotlight 63, we understand that HMRC have now written to buy-to-let property owners regarding a tax avoidance scheme promoted by Less Tax for Landlords and others requiring them to respond by no later than the end of January 2024.

In negotiation with HMRC’s lead team heading this tax spotlight we have been able to ascertain HMRC’s scope for enquiries and areas of concern. There have been so many iterations of the Hybrid structure that each case is likely to be looked at on its own merits.

Operated by “Less Tax 4 Landlords Ltd,” and others, this scheme involves landlords creating a limited company to divert the income from their limited liability partnership (LLP). The aim is for the LLP to reallocate all or most of the profits to the corporate member, effectively minimising their tax liabilities by paying tax at 19% instead of 40% or 45%.

HMRC are very clear – this tax avoidance scheme is not a legitimate means of reducing tax obligations, and those involved should take immediate action to rectify their tax affairs.

HMRC’s view

HMRC has pointed out that the scheme violates several tax rules:

• Mixed Member Partnership Legislation (Income Tax Act 2005, Section 850C and s850D): This legislation reallocates excess profits of a corporate member of an LLP to individual members.

• Anti-avoidance Legislation for Disposal of Income Streams (Income Tax Act 2007, Chapter 5AA, s809AAZA): This applies to charge the corporate member’s income on the transferor of the income stream.

• Taxation of Chargeable Gains Act 1992 S59A: This treats dealings in chargeable assets by an LLP as if done by individual members, keeping the base cost of properties unchanged.

• Inheritance Tax Act 1984, s105(3): HMRC argues that a property rental business may not qualify for Business Property Relief (BPR) under the exclusions for ‘making or holding investments.’

Have you received a letter from HMRC?

If you were involved in participating in this type of scheme but have not yet received a letter from HMRC, or your promotor has gone quiet and not responded, then time is running out and you need to take action immediately.

Get independent professional tax advice from a qualified Chartered Tax Adviser specialising in UK Property tax. UK Landlord Tax are here to assist you

Contact us today via 01902 711370 or email enquiries@uklandlordtax.co.uk for an initial consultation.

Thandi Nicholls Ltd
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