The UK’s tax authority, HM Revenue and Customs (HMRC), is taking a stand against a tax planning scheme aimed at property landlords. Known as the “hybrid business model,” the scheme promises significant tax benefits but has raised concerns at HMRC.
The Scheme
The hybrid business model involves property landlords restructuring their businesses through a Limited Liability Partnership (LLP) with a corporate member. Key steps include forming a limited company, creating an LLP, transferring properties, and allocating profits strategically.
Promised Benefits
Landlords have been enticed with the following advantages:
- Reduced upfront tax costs on property transfers
- Avoidance of mortgage interest restrictions
- Full deductions for finance costs for the corporate member
- Lower tax rates through Corporation Tax
- Reduced Capital Gains Tax (CGT) using adjusted base costs
- Potential Inheritance Tax (IHT) relief via Business Property Relief (BPR)
Learn about Corporation Tax, CGT, Inheritance Tax, and other Schemes available to you through our detailed guides & blogs.
HMRC’s Stance
However, HMRC disputes the scheme’s effectiveness, citing legislation like the Mixed Member Partnership Legislation, Partnership Anti-Avoidance Legislation, and LLP transparency rules. HMRC believes that property rental businesses involving this scheme may not qualify for Business Property Relief.
Actions
HMRC advises those involved to seek professional tax advice and rectify their tax affairs. Concerned individuals can report tax schemes to HMRC. An online reporting form is available for this purpose, and individuals may choose to submit reports anonymously.
Alternatively, if online reporting is not feasible, individuals can contact HMRC by phone to report instances of tax fraud or avoidance.
Conclusion
HMRC is cracking down on the controversial hybrid business model, warning of potential legal consequences. Property landlords should carefully consider their tax planning strategies and seek professional advice to ensure compliance with tax laws.
