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Hi everyone, we have a high leveraged portfolio and are not dependent and are not drawing any income as there is little profit from the rental business, can we still apply for;
Non-statutory clearance from HMRC on specific transactions, by writing to HMRC Non-Statutory Clearance Team at Southend on Sea, quoting Annex A of HMRC’s to identify the most probable classification in the eyes of HMRC ?
or must we fill in the partnership sections of our SA returns for 2-3 years ?, and if we do can we utilise our personal losses which we have carried over from prior years ?
with regard to incorporating will we be able to incorporate on the basis of using a Beneficial Interest Company Trust (BICT) to avoid the need to remortgage ?
Some fairly technical questions so you should get specialist advice.
You can apply to HMRC for clearance but they stopped responding to these requests in the basis there was no uncertainty. Basically they were inundated and didn't have the resource.
You don't technically have to have a partnership registered with HMRC but it saves a lot of issues. The rules are based on having a partnership. HMRC have interpreted this as meaning a return too.
I don't get your 2 year point unless it's related to the above. 3 years is an SDLT issue on withdrawing funds from a property investment partnership if you incorporate. This is when you take out your capital gain and convert it into a loan.
Your property losses will be lost unless you are trading for tax purposes. I suspect you are not.
Using BITC will not be possible as you will definitely be breaching your mortgage terms. These work by transferring legal right to receive rent to the BITC which no lender would ever consent to. This means a big black mark on your credit rating and possibly no refinancing in the future. If you have this idea from the NLA, I've already had dialogue with their tax advisor who conceded they hadn't done it with a leveraged portfolio - he did want to charge to review all the loans to see if consent was needed to transfer the right to receive rent!
Saying that you have the bare bones already of a tax efficient solution to incorporate like we do for many of our clients. You will hear many on this tribe telling you not to incorporate and of course it depends on the circumstances but I think you are trying to get round s24.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Hi thanks for all the response on a Sunday morning, I posted this a few days ago to give you more info !
We are a husband & wife team, we spend more than 50 hours between us a week self managing and running our rental portfolio. We are professional landlords and all our properties are owned jointly under our personal names.Our plans are to incorporate by the year 22/23. We have been gathering up letters from most of our third party services to confirm that we are indeed self managing our business.
We have been advised by an accountant that we should now begin submitting partnership annual returns in addition to our usual SA returns for three years, whilst another has said that we can't utilise our SA losses if we do that and that we would have to allow the losses to not be utilised, then create a partnership now for three years then Ltd Co afterwards !
Our circumstances include the fact that we are carrying over lots of losses in our self assessments from prior years, and what we want to do is not incorporate fully until those losses are all used up.
We have been told that HMRC now requires us to create a partnership for three years prior to full incorporation however how does that fit in with the fact that we have losses in our SA's?
Has anything changed in the last couple of years from HMRC requirements that we don't know about with regard to a partnership for three years, or can we simply put our case forward at that time and evidence the fact that we fully self manage ?
Do we still have to run partnership for three years or are we indeed already classed as a partnership without submitting partnership returns ?
Can we bring in our losses into the partnership ?
Can we not simply run down the losses, then in three years time create a partnership and then a Ltd Co straightaway in one go ?
The Partnership Act 1890 Act describes a partnership as ….
'the relation which subsists between persons carrying on a business in common with a view of profit.”
Does anyone have any comments or advice who have gone through this scenario or who have detailed knowledge of this particular issue ?
As Stuart Thomson rightly says that you already have the bare bones, what is missing though is through which end of the telescope you're looking. In other words, you're letting the tax tail wag the planning dog instead of focusing on how to build, run, and grow a professional property business.
If you are committed to building a business, then the best solution is to use a mixed partnership which, contrary to popular belief, have not been outlawed and will allow you to: -
not have to remortgage, change title, or bother with S162
retain your carried forward losses
pay tax from your property income at basic rate regardless of how much you take out
enjoy seamless succession planning with Inheritance Tax typically mitigated within two years
significantly reduce CGT when eventually selling properties
enjoy two layers of commercial limited liability and protection against family/marital break up
have maximum commercial flexibility
benefit from a fully accepted lender friendly solution and no breaches of your mortgage terms & conditions
a solution that is quick, easy, and cheap to unwind if the rules change.
Founding Director, for and on behalf of
Less Tax For Landlords
0203 735 2940
Your on the right Track Fox30
Just be mindful if your loans are higher than base cost you’ll trigger a tax charge on incorporation.
Dont enter into a transfer of beneficial interest if you can’t afford the risk of lenders calling in their debt.
I’ve seen an idea that may solve your problem but I’m still undertaking due diligence so not quite ready to debate it yet.
I will say dont fall for the beautiful dream of a tax free world though.
Thanks HNWA let me know when your ready !
It sounds a similar case to one I did almost a year ago.
You have taken advice. Is there a reason you don't trust it? If so change advisor as this can have big financial decisions if you get it wrong.
I'm not sure I fully understand what you have been advised. A BITC is usually a trust not a company and so why a partnership. You need to really understand this before you get yourself in trouble.
You have taken professional advice so it's best you liaise with them and not seek to challenge it. It's a fairly straight forward question.
I’ve followed your responses for a number of months now and respect your view.
We should touch base at some point to discuss the alternatives.
Thank you. I look forward to your call.