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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.
TAX EFFICIENT STRUCTURES FORTHE PORTFOLIO LANDLORDChris BaileyCo – FounderLess Tax 4 LandlordsTaxes that we face1. Income tax2. National Insurance3. Corporation Tax4. Capital Gains Tax5. VAT6. Inheritance Tax7. Stamp Duty Land TaxSTRUCTURES AVAILABLE FOR LANDLORDS1. Sole trader/partnership2. Limited Company3. Limited Liability Partnership4. Mixture of the above/Hybrid structureSole trader/partnership1. Properties are owned in your name2. Mortgages are in your name3. Profits or losses are in your name4. Capital gains are in your name5. 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 on7. Inside your estate for Inheritance taxLimited Company1. Properties owned by Limited Company2. Mortgages in the name of the Limited Company3. Higher rates of interest – debenture over Company – personal guarantee4. Rents received in the Company name – expenses paid by the Company5. Capital Gains are made in the Company name6. Tax is the responsibility of the Company – 19% tax rate7. The Company is taxed on profit – you are taxed on what you draw out8. Inside your estate for Inheritance TaxLimited Liability Partnership1. Properties are owned in the LLP name2. Mortgages are in LLP name3. Profits or losses are in LLP name4. Capital gains are in LLP name5. 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 on7. Can be outside of your estate for Inheritance TaxHybrid structure1. Takes the advantages of Sole Trader/Partnership2. Takes the advantages of Limited Company3. Join the 2 structures together4. You are taxed on profit NOT what you draw out5. Maximum tax rate is 20%6. Capital Gains – maximum rate is 19%7. Can be outside of your estate for Inheritance TaxMovement to the Hybrid structure1. No CGT or Stamp Duty2. Properties remain in your own name3. Mortgages remain in your own name4. ASTs need to be transferred to LLP name – over time5. Rents received in LLP bank – over timeResults of Hybrid structure1. Lower rates of interest than Company2. Succession planning3. Limited Liability (x2)4. No re-mortgage fees5. Allows you to run your property business as a business6. Allows you to still claim Mortgage Interest7. Maximum tax rate 20%8. Capital Gains tax reduced9. Inheritance Tax reducedNegative vibes1. HMRC investigation2. General Anti Avoidance Rule (GAAR)3. Government policy4. Property 118HMRC Investigations1. The hybrid structure is NOT a Tax Avoidance scheme2. There is no need to declare it as a DOTAS scheme on your TR3. Main driver of this structure is NOT tax reduction4. PI Cover - £1.5m per case5. Tax Investigation Insurance6. HMRC Clearance – not required as the structure uses ‘normal’ accounting rules7. HMRC - Tax-motivated allocation of business profits & losses in mixed membership partnerships8. 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 allGeneral Anti Avoidance Rule1. HMRC look at transaction2. Is its motivation tax reduction?3. They can rewind the transactionGovernment Policy1. Professional landlords2. No more accidental landlords3. W&T Allowance, Mortgage Interest both no longer allowed4. Changes to the Repairs allowance5. PRA rules – tightening of lending policy6. Minimum requirements – income, loan %, rental %7. Hybrid income is treated as trading incomeProperty 1181. Are they talking about us?2. LLPs3. Hybrids4. Competition is good5. Why haven’t we responded?Quotes from Property1181. The Hybrid and the LLP to incorporation strategy “schemes” are being touted extensively byone particular company which visits all the landlord and property shows, and clearly has avery large marketing budget.2. This structure is particularly useful for people who manage their own properties and wherethe viability of full incorporation is questionable.3. However, there is a business model doing the rounds which relies on a piece of legislationcreated 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 noSDLT or CGT payable.5. The hybrid structure is nothing new. In simple terms it’s a partnership, whereby one or moreof the partners is a Limited Company.6. In the right circumstances the structure can be extremely tax efficient and is becomingincreasingly popular following the phased introduction of mortgage interest reliefrestrictions.
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.
Like what they do now with the "Loan charge" due to IR35 wrong implementation to public sector
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.
Less Tax For Landlords
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?
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
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.
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
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
So are there any landlords on here that ARE using the hybrid structure who can give me a view please?
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.