HMRC has recently provided updated guidance concerning a tax avoidance scheme that specifically targets landlords in the country.
This scheme is promoted as a tax planning option available to individual property landlords for structuring their property-related businesses, and it is sometimes referred to as a "hybrid" business model.
HMRC alleges that this scheme attempts to circumvent restrictions on:
- mortgage interest relief, allowing for increased deductions for mortgage interest
- reduce the tax liability on profits generated by property businesses
- reduce Capital Gains Tax obligations when properties are sold
- decrease Inheritance Tax liabilities payable on death.
The guidance issued by HMRC states, "HMRC's position is that this scheme is does not work. people who use these arrangements may have to pay more tax than they were trying to avoid as well paying interest, penalties, and high fees for using such schemes."
The guidance provided by HMRC is comprehensive and outlines the mechanics of the scheme, which typically involves establishing a limited company and an associated Limited Liability Partnership (LLP).
However, HMRC explicitly warns that this scheme is not effective, as the arrangements fall under other various existing tax regulations, as detailed in their guidance.
HMRC also extends an invitation to landlords who suspect they might be involved in this arrangement and wish to rectify their tax situation to contact them for assistance.
HMRC firmly advises individuals currently using this or similar schemes or arrangements to discontinue their involvement and ensure that their tax affairs are appropriately settled.
You can see the full guidance here.