Spotlight 63: Illuminating tax planning that is too good to be true

There can be many good reasons to incorporate, but there can also be many hurdles, not least potential upfront CGT and SDLT costs.

The tax rules have not always been kind to Landlords in recent years. Whether it is the higher rate of capital gains tax (CGT) for residential property, the new CGT 60 day reporting requirements, loan interest relief restrictions, hikes in SDLT, or unfavourable treatment of property businesses for IHT, many landlords are now looking at ways to minimise their tax burden.

Restructuring property portfolios, and in particular incorporating a property portfolio, is not a new phenomenon, it has however become very ‘chic’ in the current tax climate.

There can be many good reasons to incorporate, but there can also be many hurdles, not least potential upfront CGT and SDLT costs. Out of this desire to enjoy the upside of incorporation, without incurring the upfront pain a number of supposed solutions have entered the market over the years.

Not unlike most areas of tax, property taxation can be complicated, and often you will find competing opinions on matters of tax planning among professionals. What is stark about some of the schemes gaining traction in the news of late, is the almost unprecedented unanimity of opinion amongst tax professionals that these schemes simply do not work.

HMRC have picked up on one such arrangement and have released Spotlight 63 Property business arrangements involving hybrid partnerships – this focuses on the inappropriate use of hybrid partnerships in property tax planning – this has not come as a great surprise to those in the industry given specific legislation counteracting such structures.

It may though come as a surprise to those taxpayers who have been sold the ‘Holy Grail’ of property tax planning and could now find themselves with a much larger problem than the one they sought to correct in the first place.

We could go into detail about the shortcomings of some of the schemes we have seen, but, there are not enough column inches. All these schemes have however used combinations of hybrid partnerships, LLPs or trust arrangements as part of the incorporation process.

Such planning should also be viewed in the light of general increased activity in the real estate sector by HMRC, as detailed in our article from January 2023 HMRC activity in the Real Estate sector.

Landlords caught in this particular web, or who are still looking to restructure, should seek professional advice from a trusted and reputable source. Reliefs from the CGT and SDLT charges are available, but in limited circumstances, so understanding if they are appropriate to your circumstances is important when reviewing your incorporation. Crowe UK has a great deal of experience in property taxation, and regularly works with Landlords to restructure their affairs as part of a long-term working relationship.

At Crowe we are here to help, and to offer you bespoke advice tailored to your circumstances - we are not here to sell you a scheme or a product. While searching for the ‘Holy Grail’ might be romantic and exciting, it is worth noting that it has never been found!