How This Doomed Tax Scheme Has Unfortunately Duped Many Landlords & What To Do Next

Anyone thinking of transferring existing rental properties to a limited company should read this.

An overview of the position for Landlords 

An infamous firm of ‘Accountants and Tax Advisors’ with a well-known reputation that unfortunately proceeds them for all of the wrong reasons in the tax community has been the subject of a detailed and forensic examination by Dan Neidle of Tax Policy Associates. Readers will recall that it was Dan Neidle who uncovered the tax arrangements of Nadim Zahawi which led to his resignation.

Dan Neidle has written extensively on how he believes that Property 118  has duped clients with a tax scheme regarding transferring existing properties to a Limited Company with little or no tax upfront tax costs. Instead of saving the client’s tax the tax scheme has actually doubled the tax due for most of these landlords who have been sold, or perhaps mis-sold would be more appropriate, this advice. 

We have for years advised clients that this kind of aggressive tax avoidance are obvious tax scheme that is clearly and easily caught by HMRC’s anti-avoidance legislation. We have literally had to advise hundreds of landlords not to get caught up in this “too good to be true” tax avoidance.

Unfortunately, this has come too late for many clients who have implemented such schemes and who can now expect large tax bills from HMRC as a result of this information coming to light. 

There is also no doubt that HMRC will surely take a closer look at all of these clients and the advice they have implemented for not only this tax scheme but also the other tax schemes that this firm has promoted. Despite the advice being incorrect and being provided by so-called tax advisors (there appear to be no tax-qualified professionals working for this firm) it will be the landlords that have to pay the tax, penalties, and interest due as a result of any HMRC Enquiry. 

We have included below the links to the tax scheme being outed by a third party to help landlords from being duped by such tax schemes and to provide more information about the details of this particular tax scheme. 

https://www.accountingweb.co.uk/tax/business-tax/landlords-double-tax-bills-by-taking-poor-advice

https://www.taxpolicy.org.uk/2023/09/13/property118/

We have also provided links below to our previous blogs highlighting to our clients the need to take precautions with the advice provided by this firm and many others like it who unfortunately take an aggressive approach to tax advice which ends up costing innocent clients significant sums of tax, penalties and interest when HMRC come knocking eventually.

https://uklandlordtax.co.uk/stamp-duty-on-transfer-property-partnership/

https://uklandlordtax.co.uk/stamp-duty-on-buy-to-let-property/

If you are a client who has participated in this tax scheme, please kindly get in touch and we will assist you with the next steps to help you with your position before HMRC opens an Enquiry.

For any landlord thinking about taking an aggressive approach to saving tax please be aware that whilst we appreciate the appetite to save as much tax as possible, especially since the introduction of Section 24, you should caution against taking any steps which are reckless and will lead us as landlords to lose even more money to HMRC. Further, if landlords are found to have committed mortgage fraud, they could end up losing their current rental properties and find it difficult to obtain mortgages in the future. 

The details of this tax scheme 

Without going into granular detail given that there are significant details in both of the links provided above, we can confirm that we agree that this tax scheme is clearly caught by HMRC’s anti-avoidance legislation.

Firstly, we do not believe HMRC will accept that Incorporation Relief is available meaning that Capital Gains Tax (CGT) must be payable, rather than being avoided completely as suggested by the tax scheme, when transferring the properties to the Limited Company. This will clearly be a huge headache for landlords who have used this scheme to avoid CGT which is one of the largest costs that this tax scheme attempts to unsuccessfully avoid.

The use of the Trust itself we believe will involve the clients unknowingly committing mortgage fraud by breaking the terms and conditions of their current Buy To Let mortgage.

We also believe that Stamp Duty Land Tax (SDLT) is payable in full even when a ‘Partnership’ has been used. The ‘Partnership’ usually involves relatives such as married couples and there is little or no paperwork proving that a Partnership has ever existed. Certainly not from the first day the properties were acquired which increases the risk that HMRC would not deem this to be a bona fide Partnership in the first place thus denying any SDLT relief on the incorporation of a Partnership. 

There is also the catch-all S75A SDLT anti-avoidance legislation to contend with and so we do not believe there is any chance such a scheme will ever avoid the SDLT payable when incorporating the properties to the Limited Company.

The combination of the significant CGT and SDLT costs will usually ensure that it is not commercially viable to transfer the properties across to a Limited Company for most landlords although there can be exceptions. 

This particular tax scheme also should have been reported to HMRC for being a tax scheme and it does not appear that this has been reported as such to HMRC. This could result in the firm that has promoted this tax scheme being fined up to £1m should HMRC wish to pursue this option. 

What can we do to help 

If you are a client who has participated in this tax scheme, please kindly get in touch and we will assist you with the next steps to help you rectify your position before HMRC opens an Enquiry.

If you are a landlord who is looking at the possibility of moving your properties to a Limited Company and you would like to speak to us about how we can help you legitimately do this if commercially viable, please kindly get in touch with the team at UK Landlord Tax on 01902 711370 or email enquiries@uklandlordtax.co.uk

Thandi Nicholls Ltd
Creative Industries Centre
Glaisher Drive
Wolverhampton
West Midlands
WV10 9TG