HMRC – avoiding CGT

HMRC has issued a warning which is of interest to BTL investors and their advisors. HMRC states:

‘HMRC is aware of a tax avoidance scheme being marketed to landlords, which enables them to transfer their property business to a company using a Limited Liability Partnership (LLP), to save Capital Gains Tax.

HMRC’s view is that this scheme does not work. People who use this scheme may have to pay more than just the tax they tried to avoid as well as paying interest, penalties and fees for using such schemes.

How the schemes are claimed to work

The schemes typically work as follows:

1. An existing business operates for most of its active life as an unincorporated business.

2. The individual landlord incorporates an LLP.

3. The landlord transfers their rental properties, often with substantial accrued capital gains, to the LLP at market value.

4. After a short period, the LLP is put into Members’ Voluntary Liquidation (MVL).

5. The properties are then sold to a limited company owned by the landlord or connected parties (if continuing with the business).

6. For the purposes of the MVL, the LLP is seen to acquire its assets at the time of the contribution for its market value.

HMRC’s view is that this scheme does not work to save:

• Capital Gains Tax

• Stamp Duty Land Tax

• Inheritance Tax

What to do if you’re using this scheme

If you think you’re already involved in these schemes and want to get out, HMRC can help. HMRC offers a range of support to get you back on track or avoid being caught out in the first place.

If you’re using this or similar schemes, HMRC strongly advises you to withdraw from it and settle your tax affairs. You can do this by emailing HMRC at spotlight69@hmrc.gov.uk and we will tell you what further information we require.’

Source: www.gov.uk/guidance/liquidation-of-a-limited-liability-partnership-used-to-avoid-capital-gains-tax-spotlight-69.