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Spotlight 63: HMRC issues hybrid structure warning to landlords

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The publication of HMRC’s Spotlight 63 is a timely reminder to landlords that if the benefits of a marketed tax avoidance arrangement seem too good to be true, then they probably are.

The Spotlight focuses on a widely marketed tax avoidance arrangement, which was actively promoted to individual landlords. It sought to avoid paying tax on their property income and to reduce capital gains tax and inheritance tax liabilities.

Specifically, the arrangements sought to avoid tax by allowing individual or joint property landlords to transfer their properties to a limited liability partnership with a corporate member (often referred to as a ‘hybrid’ arrangement). The LLP then allocates profits on a discretionary basis to members.

HMRC’s view is however, rightly in our view, that the arrangements do not achieve the intended tax benefits.  The Spotlight advises landlords using such arrangements to withdraw from the arrangement and to contact HMRC to settle their tax affairs.

Tom Roseff, Tax Partner at BHP, said. “Having steered a number of clients away from such schemes, it’s unsurprising that HMRC have now issued a warning to landlords. I would strongly recommend that any landlords using such arrangements should consider taking independent professional advice to review their structures such that they fully understand their position and, if required, the steps that may need to be taken in relation to HMRC.”

If you have any queries relating to the above or if you need further assistance with your business tax matters, get in touch with a member of our Tax team or call 0333 123 7171.