HMRC has issued a firm warning to landlords to steer clear of hybrid business model schemes.<\/p>\n
<\/p>\n
These schemes are marketed as clever ways to structure your property business and reduce your tax bill, but they are often too good to be true.<\/p>\n
The consequences of getting involved can be far more costly than any promised savings.<\/p>\n
Now that they are on HMRC\u2019s radar, you need to be careful that you are not putting your compliance at risk.<\/p>\n
The hybrid business model is pitched as a way for landlords to reduce their tax bills by restructuring how rental profits are reported.<\/p>\n
They often involve setting up a Limited Liability Partnership (LLP) that includes individual landlords and a corporate member, usually a limited company.<\/p>\n
Properties are then transferred into the LLP and profits are distributed between the members in a way that supposedly minimises tax.<\/p>\n
Instead of being taxed at higher or additional Income Tax rates at 40 per cent or 45 per cent, a portion of the profits will be allocated to the corporate member and they will pay Corporation Tax at a lower rate.<\/p>\n
Many promoters also claim that this setup allows landlords to bypass restrictions on mortgage interest relief.<\/p>\n
On paper, it sounds nothing but appealing.<\/p>\n
However, it is not all that it is cracked up to be.<\/p>\n
HMRC have been clear that these schemes breach existing tax legislation, particularly rules made to prevent profit shifting between individuals and companies.<\/p>\n
The mixed member partnership rules ensure that profits allocated to a corporate partner are reassigned back to the individual landlords if there is no genuine reasoning.<\/p>\n
HMRC have also noted that even if income is routed through another structure, it can still be taxed as the landlord\u2019s personal income.<\/p>\n
The further risks of property transfers into LLPs or companies are that they can trigger Stamp Duty Land Tax (SDLT) and potential Capital Gains Tax (CGT) implications.<\/p>\n
These costs are something that promoters often downplay or ignore.<\/p>\n
HMRC is being blunt in their messaging and stating that these arrangements are high risk and likely to fail under scrutiny.<\/p>\n
Landlords using or even debating the use of these schemes need to steer clear and be sure of the risks.<\/p>\n
HMRC can challenge these arrangements and you could end up facing:<\/p>\n
HMRC has also warned that scheme promoters can face fines up to \u00a31 million and is proving just how serious they are about putting a stop to this issue.<\/p>\n
You don\u2019t want to have to end up paying more than you originally hoped to save and the added stress and disruption that non-compliance brings is just not worth it.<\/p>\n
HMRC has advised anyone who is already involved in this scheme or has been approached to use it to speak to a qualified accountant.<\/p>\n
Our professional team can cut through the marketing jargon and assess whether a tax-saving strategy is compliant with UK tax legislation.<\/p>\n
We don\u2019t want you to face any hefty penalties, so any advice we give on staying tax-efficient will be fully compliant.<\/p>\n
If you need further advice or support with keeping your taxes compliant, get in touch.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":" HMRC has issued a firm warning to landlords to steer clear of hybrid business model schemes.<\/p>\n","protected":false},"author":2,"featured_media":6965,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,28,7],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6963"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=6963"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6963\/revisions"}],"predecessor-version":[{"id":6964,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6963\/revisions\/6964"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/6965"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=6963"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=6963"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=6963"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}