HMRC has contacted Landlord Today to draw attention to new guidance it has issued over a tax avoidance scheme aimed at landlords.
The scheme is marketed as a tax planning option available to individual property landlords to structure their property business - it’s sometimes referred to as a hybrid business model.
HMRC alleges that the scheme attempts to by-pass mortgage interest relief restrictions allowing increased deductions for mortgage interest, reduce the tax payable on profits generated by the property business, cut Capital Gains Tax payable when properties are sold, and reduce Inheritance Tax payable on death.
The Revenue says in the guidance: “HMRC’s view is that this scheme does not work. 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.”
The guidance is detailed and sets out how the arrangement claim to work, which involves setting up a limited company and an accompanying LLP.
But HMRC warns that this scheme does not work as the arrangements are primarily caught by a number of other existing tax measures, set out in the guidance.
The Revenue says any landlord who believes they are in this arrangement and wish to get out can contact HMRC for help.
And it states: “If you’re using this or similar schemes or arrangements, HMRC strongly advises you to withdraw from it and settle your tax affairs.”
You can see the guidance here.
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