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  • Tax

    "Hybrids" - a false promise?

    So what exactly is a "hybrid corporate arrangement"? The following bullets (mailing from Tax for landlords ltd) describe the author's view of benefits. Other companies offer similar.

    1. No loss of mortgage interest relief or wear & tear allowances
    2. Income Tax from your property income at 20% maximum
    3. No Capital Gains Tax, Stamp Duty, or Inheritance Tax
    4. No need to remortgage
    5. Better risk and business management
    6. Maximum flexibility
    7. Proven and insured solution
    8. Peace of mind and more money in your pocket!

    4. indicates mortgage is kept in landlord's name, 2. Either assumes less that £43k taxable income and no NI or hints at a ltd company (20% corporation tax rate), but (excluding first £5k dividend) extracted money is taxed, 3. IMHO might need a caveat saying "assuming you don't sell or transfer ownership"! If a ltd co. owned the property/ies (appears not to be the case), transferring shares can help minimise those taxes. 7. Does "insured solution" suggest insurance is available in case the scheme fails?  Tax avoidance scheme* providers are required to register schemes with HMRC and we need declare whether one has been used in out tax returns.

    If any Property Tribes members are considering such a scheme, could I suggest after you've had the "sell" that you share the full details here so we can help you critique the advantages and drawbacks of the scheme being proposed?

    Ref:

    HMRS win against Ingenious Films Ltd scheme

    HMRC tax avoidance scheme guidance

    * This may or may not be such a scheme.

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    I noticed this promotion as well.  Thank you for posting it for community scrutiny.

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    Update from original author:

    Seems by the lack of comments that this approach is not proving popular!  I came across some HMRC anti-avoidance legislation that gives examples of "hybrids" used for avoidance of taxation and might be interesting for anyone considering this strategy.  Be prepared, these are lengthy documents!

    In summary it appears the schemes seek to exploit the differences between the way different entities (you as a taxpayer, a ltd. co.,  partnership, etc) are taxed. A single transaction (loan or property purchase?) resulting in two entities (both owned by the same person) making separate claims for tax relief whereas HMRC ideally intends just a single relief. This appears more common between different countries but it appears it might also be possible just within the UK.

    Google "hybrid 13 March 2005 " to find anti-avoidance measures introduced in that budget.

    And if that does not cure your insomnia, this definitely will:

    Draft Guidance, Hybrid and Other Mismatches, Dec 2016

    Enjoy!

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    Thanks for this up-date GG.

    ​However the link does not work so I replaced it with what I think to be the correct page.  Please check and confirm.

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    I reckon the only way for Southern LL to avoid S24 is to sell up and then buy back into the market.

    If I had London property I would be selling up

    Then keep my cash available to buy fewer properties via corporate set up.

    Possibly buying in the South but outside London.

    Or pay the S24 tax by increasing rents

    There is no other realistic alternative for a Southern LL!

    I reckon prices will reduce when the full horrors of S24 cause LL throw in the towel.

    Do it now while prices are fairly stable.



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    I'm curious about the mailing from  Tax for landlords ltd  as  mentioned by the OP.

    I've Googled that name and can't find anything.


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    Anotherjohn,   Checking my old emails, it appears the company was"lesstaxforlandlords"....here is the original email  (I am not endorsing this company BTW)

    Thinking of Transferring Your Properties to a Limited Company?

    STOP!

    Whilst incorporation (either directly or via a temporary LLP) might be the answer for some, for most it is absolutely the WRONG thing to do.

    Here's why incorporation is wrong...

    There are several reasons including (but not limited to):

    • you will need to remortgage and obtaining finance without a floating charge can be expensive
    • S162 incorporation relief is not a given, and proving to HMRC that you work ‘in’ the business for 19 hours per week can be difficult
    • you may risk double taxation, and not all limited companies or LLPs qualify for  Business Relief - especially if all they hold are rental properties

    Other solutions such as hybrids, often offer a more favourable (and tried and tested) solution, without any of the associated costs you get with incorporation.

    So if you are thinking about incorporating, then please read this short article on Landlord Incorporation. 

    (*Moderator note: Contact details removed*).

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    Thank you Goodguy.

    Has anyone signed-up for a hybrid structure?

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    Further mentions of Hybrids, yesterday at the National Landlord Show, Olympia, London, by Tony Gimple from same company: LessTax4Landlords.

    Seems it is for Ls with more than just a few properties, so that counts me out.

    Key point seemed to be that properties stay in your own name. An LLP is used which "does not pay tax in own right; recipients pay the tax"* [as compared to a ltd co. which pays corporation tax]. He claimed all the big players are using this set-up. An additional benefit to those listed at the top of this post is that double-layer protection against [err] was it liabilities or divorce!? (a ltd. co. would have one layer of limited liability, as I guess so would a LLP, so perhaps both are used)

    Tony is a well practiced presenter who gives a good pitch, and cleverly does not give many clues away!  In answer to one question about the cost he said just said it was a fixed price fee. So for the moment at least this scheme remains a mystery and his profits are well protected! 

    *This sounds a bit like a REIT (Real Estate Investment Trust) - REITs sound as if they are American, but this clearly successful scheme has been adopted around the world including UK. See Wiki link.  BUT it appears to be for the really really big boys, such as Slough Estates Who own about half of Slough! This is therefore likely to be a red herring!

    If you have any more insight, please reply to this post.


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    I think we should all start requesting, when we speak to the guys selling these schemes, an indemnity from their company, backed by a legally enforceable personal guarantee (like the one you have to give when taking out a mortgage in your Ltd Co name).

    It puts their money where their mouth is and that should be much better than reliance on (non "sue-able") "leading QC opinion".

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