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  • Tax

    Restricting tax using LLP+Ltd company?

    Hi there. I’ve had a meeting today with a (recommended on here) company to potentially look at tax savings and financial planning. Not sure if I’m allowed to mention the company but wouldn’t mind feedback on your own dealings with certain companies.

    Anyhow does anyone use the LLP +LTD company business structure to save tax and if so what are your advantages and disadvantages in doing so?

    Happy to mention the name if I’m allowed to.

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    TAX EFFICIENT STRUCTURES FOR
    THE PORTFOLIO LANDLORD

    Chris Bailey
    Co – Founder
    Less Tax 4 Landlords

    Taxes that we face
    1. Income tax
    2. National Insurance
    3. Corporation Tax
    4. Capital Gains Tax
    5. VAT
    6. Inheritance Tax
    7. Stamp Duty Land Tax

    STRUCTURES AVAILABLE FOR LANDLORDS
    1. Sole trader/partnership
    2. Limited Company
    3. Limited Liability Partnership
    4. Mixture of the above/Hybrid structure

    Sole trader/partnership
    1. Properties are owned in your name
    2. Mortgages are in your name
    3. Profits or losses are in your name
    4. Capital gains are in your name
    5. Taxes are your responsibility and are taxed at your marginal rate – maximum 45%
    6. You are taxed on profit NOT what is drawn out to live on
    7. Inside your estate for Inheritance tax

    Limited Company
    1. Properties owned by Limited Company
    2. Mortgages in the name of the Limited Company
    3. Higher rates of interest – debenture over Company – personal guarantee
    4. Rents received in the Company name – expenses paid by the Company
    5. Capital Gains are made in the Company name
    6. Tax is the responsibility of the Company – 19% tax rate
    7. The Company is taxed on profit – you are taxed on what you draw out
    8. Inside your estate for Inheritance Tax

    Limited Liability Partnership
    1. Properties are owned in the LLP name
    2. Mortgages are in LLP name
    3. Profits or losses are in LLP name
    4. Capital gains are in LLP name
    5. Taxes are the LLP responsibility but are taxed at your marginal rate – maximum 45%
    6. You are taxed on profit NOT what is drawn out to live on
    7. Can be outside of your estate for Inheritance Tax

    Hybrid structure
    1. Takes the advantages of Sole Trader/Partnership
    2. Takes the advantages of Limited Company
    3. Join the 2 structures together
    4. You are taxed on profit NOT what you draw out
    5. Maximum tax rate is 20%
    6. Capital Gains – maximum rate is 19%
    7. Can be outside of your estate for Inheritance Tax

    Movement to the Hybrid structure
    1. No CGT or Stamp Duty
    2. Properties remain in your own name
    3. Mortgages remain in your own name
    4. ASTs need to be transferred to LLP name – over time
    5. Rents received in LLP bank – over time

    Results of Hybrid structure
    1. Lower rates of interest than Company
    2. Succession planning
    3. Limited Liability (x2)
    4. No re-mortgage fees
    5. Allows you to run your property business as a business
    6. Allows you to still claim Mortgage Interest
    7. Maximum tax rate 20%
    8. Capital Gains tax reduced
    9. Inheritance Tax reduced

    Negative vibes
    1. HMRC investigation
    2. General Anti Avoidance Rule (GAAR)
    3. Government policy
    4. Property 118

    HMRC Investigations
    1. The hybrid structure is NOT a Tax Avoidance scheme
    2. There is no need to declare it as a DOTAS scheme on your TR
    3. Main driver of this structure is NOT tax reduction
    4. PI Cover - £1.5m per case
    5. Tax Investigation Insurance
    6. HMRC Clearance – not required as the structure uses ‘normal’ accounting rules
    7. HMRC - Tax-motivated allocation of business profits & losses in mixed membership partnerships
    8. This legislation is being introduced to remove the tax advantages gained through tax motivated: i)
    profit allocations to non-individual partners; and ii) loss allocations to individual partners.
    9. We have submitted over 100 of these structures to HMRC and they have agreed them all

    General Anti Avoidance Rule
    1. HMRC look at transaction
    2. Is its motivation tax reduction?
    3. They can rewind the transaction

    Government Policy
    1. Professional landlords
    2. No more accidental landlords
    3. W&T Allowance, Mortgage Interest both no longer allowed
    4. Changes to the Repairs allowance
    5. PRA rules – tightening of lending policy
    6. Minimum requirements – income, loan %, rental %
    7. Hybrid income is treated as trading income

    Property 118
    1. Are they talking about us?
    2. LLPs
    3. Hybrids
    4. Competition is good
    5. Why haven’t we responded?

    Quotes from Property118
    1. The Hybrid and the LLP to incorporation strategy “schemes” are being touted extensively by
    one particular company which visits all the landlord and property shows, and clearly has a
    very large marketing budget.
    2. This structure is particularly useful for people who manage their own properties and where
    the viability of full incorporation is questionable.
    3. However, there is a business model doing the rounds which relies on a piece of legislation
    created to deal with CGT on the liquidation of an LLP.
    4. When property is transferred into an LLP the transfers can be structured so that there is no
    SDLT or CGT payable.
    5. The hybrid structure is nothing new. In simple terms it’s a partnership, whereby one or more
    of the partners is a Limited Company.
    6. In the right circumstances the structure can be extremely tax efficient and is becoming
    increasingly popular following the phased introduction of mortgage interest relief
    restrictions.


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    The Hybrid structure is a no brainer as long as HMRC accept it both now and in the future.

    If they decide it is not acceptable in 10 years time you could end up with a big tax bill.

    Will the insurance cover the tax  bill.? Who knows.

    If HMRC approved it I would do it.But I dont think they have.

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    Hi All,

    For the avoidance of doubt, The Bailey Group has been successfully using hybrid tax and property planning for almost ten years now for property owning clients of all sizes, and HMRC are happy that it conforms to all the relevant rules.

    The position in re HMRC is as follows: -

    HMRC clearance is NOT required.

    Hybrids do NOT fall under the Declaration of Tax Avoidance Schemes (DOTAS) provisions.

    Hybrids do NOT fall foul of the General Anti-Abuse Rule (GAAR).

    Hybrids ARE allowed under the Generally Accepted Accounting Principles (GAAP).

    Hybrids are legitimate business structures and NOT tax avoidance schemes.

    Hybrid income IS treated as trading income.

    Hybrids ARE fully in line with Government policy to professionalise the sector, and comply with both the letter and spirit of the law.

    Meanwhile, we have a 100% record, and to date HMRC have never failed to agree our clients’ tax returns.

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    Tony Gimple

    Founding Director

    Less Tax For Landlords


    Hi Tony,

    It's  shame that HMRC will not formally approve your scheme.If they did you would get alot of business.

    It's very frustrating because s.24 is a huge problem.

    Can you not ask HMRC to give formal clearance even if it is not required?

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    Hi Bill,

    If we were running a tax 'scheme' as you and others often put it, then asking for clearance might have been an option.

    Thankfully though, HMRC clearance is not required as the business structure uses ‘normal’ accounting rules and thus does not require pre-clearance

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    Tony Gimple

    Founding Director

    Less Tax For Landlords

    Your marketing literature includes the phrase - 

    Main driver of this structure is NOT tax reduction

    however the schemes main aim appears to be to avoid S24 which contradicts this, can you clarify please.

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    Hi Tony

    I am quite sure the methods you use at present have not been challenged by HMRC yet

    and that's my problem

    My own Tax advisor who has a lot of experience and works for one of the Largest practices in the North East and an Ex NLA Rep and

    presents taxation forums to Councils landlord groups and is well respected steered me away from the schemas other Tax Advisers say work

    He said to me if it was as easy and safe as  your saying me as a  Landlord myself I would be using this method

    I am no way a Tax Expert But I do value My Tax advisors opinion on this

    I personally just don't want to get in hot water with an investigation with HMRC

    I know friends who have and its very stressful and can go on for years

    I only wish Two Tax advisors from both sides of the camp could on Property Tribes and give both sides of this issue in some sort of forum if that was possible






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    Learn Change and Adapt ?????


    So are there any landlords on here that ARE using the hybrid structure who can give me a view please?

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    The best thing to do is get an opinion from another accountant.

    Stephen  Fay of Fylde Accountants understands the hybrid structure as it's on his website.

    I would email him.

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    Can anyone from the mortgage broker members on here comment on the availability or otherwise of mortgages to companies or LLPs that are part of hybrid structures?  My understanding is that no or very few lenders will consider lending to such a structure - though I'm not a broker so can't say with certainty.

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