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HMRC raise red flag on hybrid tax avoidance schemes
HMRC raise red flag on hybrid tax avoidance schemes
Sometimes called a hybrid business model, the schemes are being used by individual landlords to avoid paying tax on their property income and reduce capital gains tax. Those who use these arrangements may have to pay more than the tax they tried to avoid as well as paying interest, penalties, and high fees.
Marketed to landlords as a tax planning option, the scheme involves individual or joint property landlords transferring their properties to a limited liability partnership (LLP).
The arrangements then attempt to by-pass mortgage interest relief restrictions allowing increased deductions for mortgage interest, reduce the tax payable on profits generated by the property business, cut Capital Gains Tax payable when properties are sold, and reduce Inheritance Tax payable on death.
HMRC’s view is that this scheme does not work, because the arrangements are prevented from delivering their claims by existing tax legislation.
Advice for landlords who are already using this scheme
HMRC encourages people to get in touch if they want to get out of an arrangement like this. They offer a range of support to assist in putting things right.
Anyone concerned about the schemes they are currently using should also consider:
- getting independent professional tax advice
- speaking to one of the tax charities such as TaxAid
