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HMRC has warned landlords that a new kind of tax dodge scheme being promoted to landlords is illegal and may result in a bigger tax bill.
The schemes, which are sometimes called ‘hybrid business models’, are advertised as a way of avoiding capital gains and inheritance tax.
Bypassing mortgage interest relief restrictions is one of the ways the schemes are designed to reduce tax, HMRC says.
Penalties
Its view is that this such schemes do not work, and landlords who use these arrangements may have to pay more than the tax they tried to avoid as well as interest, penalties and high fees.
“The arrangements seek to avoid tax by allowing individual or joint property landlords to transfer their properties to a limited liability partnership (LLP) with a corporate member. The LLP then allocates profits on a discretionary basis to members,” HMRC adds.
Caught
The schemes are “primarily caught by” different laws including legislation on income and inheritance tax.
We strongly advise you to withdraw from it and settle your tax affairs.”
“If you think you’re already involved in this arrangement and want to get out, HMRC can help. We offers a range of support to get you back on track or avoid being caught out in the first place,” the tax agency says.
“We strongly advises you to withdraw from it and settle your tax affairs.”
£1 million penalty
Any individual who is behind one of these schemes can be fined £600 per day initially, rising to a penalty of £1 million.
Scheme ‘promoters’ must comply with the disclosure of tax avoidance schemes (DOTAS) legislation.
Any landlord can withdraw from one of the schemes by emailing HMRC at [email protected]
Lawyer Dan Niedle of Tax Policy Associates has investigated the property tax avoidance schemes, warning that HMRC may take action.
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