{"id":11379,"date":"2023-10-05T09:16:53","date_gmt":"2023-10-05T08:16:53","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=11379"},"modified":"2023-11-30T11:58:43","modified_gmt":"2023-11-30T11:58:43","slug":"lt4f","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/","title":{"rendered":"Less Tax for Landlords: the \u00a350m landlord tax avoidance scheme that HMRC say doesn’t work, and can trigger a mortgage default."},"content":{"rendered":"\n

Less Tax for Landlords is a high profile firm. They sponsor the National Landlord Investment Show and are promoted by the National Residential Landlords Association. They won the Property Reporter award for “Best Accounting & Tax Services 2023<\/em><\/strong>“. They’ve sold hundreds of landlords a “hybrid partnership” structure which is supposed to avoid income tax, capital gains tax, stamp duty land tax and inheritance tax. It’s flown under HMRC’s radar, and so avoided about \u00a350m in tax to date. But in reality the scheme doesn’t work, and triggers significant additional taxes. HMRC have just confirmed this. Worse, the scheme will in many cases default the landlord’s mortgage. <\/em><\/strong><\/p>\n\n\n\n

Our recent report on Property118<\/a> described their trust\/company scheme as the worst avoidance scheme we’ve seen. The aim was to enable landlords to move their business to a company, and claim relief on their mortgage interest, without any of the commercial or tax downsides that would normally follow from that. The scheme fails, and likely triggers significant<\/a> additional<\/a> tax<\/a> but, more seriously, in our view (and that of UK Finance<\/a>) it likely defaults the client’s mortgage<\/a>.<\/p>\n\n\n\n

A plausible explanation was that Property118 is a firm of salespeople with no legal or tax expertise. They are reliant for legal and tax advice on “Cotswold Barristers” – a genuine barristers’ chambers, but a rather peculiar one<\/a>, with no specialist tax barristers. So it’s not surprising that their attempts to engineer a clever tax avoidance scheme ran awry. <\/p>\n\n\n\n

Less Tax for Landlords is different. On the face of it, they have a large, qualified and experienced team<\/a>. However their explanations for their structure are nonsensical, and their structures will leave taxpayers in a complex mess – a potentially even worse outcome than Property118’s. <\/p>\n\n\n\n

Here’s the view of Ray McCann, a retired senior HMRC inspector and past President of the Chartered Institute of Taxation:<\/p>\n\n\n

“The Less Tax for Landlords structure is nonsense. It lures clients into what they may think are clever interpretations of the law – but actually LT4L are just plain wrong”<\/em><\/p>\n\n\n

And here’s HMRC’s view<\/a>:<\/p>\n\n\n\n

\"HMRC\u2019s<\/figure>\n\n\n

Who are Less Tax for Landlords?<\/h2>\n\n\n

They’re part of the One Consultancy Group<\/a>, which includes an accounting firm (OCG Accountants), a mortgage broker (OCG Mortgages), an FCA regulated financial services firm (Phare Financial Services) and an SRA regulated law firm (OCG Legal).1<\/a><\/sup>Less Tax for Landlords Ltd appears to be just used for marketing; all the work is undertaken by employees of other group members. In the interest of clarity, this report will refer throughout to LT4L.<\/span> They say their tax services are provided by qualified professionals – solicitors, ICAEW and ACCA accountants, and STEP (trust and estate) practitioners: <\/p>\n\n\n\n

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Less Tax for Landlords (LT4L) have an established industry profile. They sponsor the National Landlord Investment Show<\/a> and are promoted by the National Residential Landlords Association<\/a>:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

They won the Property Reporter award<\/a> for “Best Accounting & Tax Services 2023”: <\/p>\n\n\n\n

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And here’s the typical LT4L scheme.2<\/a><\/sup>The descriptions of LT4L’s structure and approach in this report are based on statements made by LT4L on their websites, videos and web forums, as well as reports with advisers who’ve spoken to LT4L’s representatives, and reports from and documents provided by potential and actual LT4L clients. Our understanding is not complete and, in particular, we do not understand the rationale for the debt that LT4L often puts in place between the LLP and its members – the nature of an LLP is such that this is unlikely to create a tax benefit, and could trigger additional tax (particularly SDLT under the very awkward debt repayment rule in Schedule 15 para 17A Finance Act 2003<\/a>).<\/span> This is from a document sent to a potential client this year:3<\/a><\/sup>We’ve seen numerous almost identical examples going back several years. The only edits we’ve made to this are to mask the figures to protect our source.<\/span><\/p>\n\n\n\n

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This is a very complicated-looking structure for a medium-sized property rental business.<\/p>\n\n\n\n

It is supposed to work like this:<\/p>\n\n\n\n