{"id":12477,"date":"2023-11-28T08:58:00","date_gmt":"2023-11-28T08:58:00","guid":{"rendered":"https:\/\/www.taxpolicy.org.uk\/?p=12477"},"modified":"2024-01-22T21:05:28","modified_gmt":"2024-01-22T21:05:28","slug":"what_happened","status":"publish","type":"post","link":"https:\/\/heacham.neidles.com\/2023\/11\/28\/what_happened\/","title":{"rendered":"HMRC is likely investigating the two big landlord tax avoidance firms. What should their clients do?"},"content":{"rendered":"\n<p><strong>We recently wrote about two landlord tax avoidance outfits: Less Tax for Landlords and Property118. They together advised thousands of landlords, and avoided \u00a3100m+ of tax; we believe both firms, and their clients, are now the subject of HMRC investigations.<\/strong><sup class=\"modern-footnotes-footnote \" data-mfn=\"1\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-1\">1<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-1\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"1\">HMRC&#8217;s obligation of taxpayer confidentiality means that it will never say that a person is under investigation. HMRC can undertake an enquiry and collect large amounts of tax and penalties, and this won&#8217;t become public. Usually it is only if the taxpayer appeals, and the matter reaches a tribunal, that the name of the taxpayer becomes publicly known. However in some cases, as here, we can infer from surrounding circumstances that an HMRC investigation is likely to be underway.<\/span><\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"property118\">Property118<\/h2>\n\n\n<p>Property118 sell a scheme that involves landlords declaring a trust over their rental properties (likely <a href=\"https:\/\/heacham.neidles.com\/2023\/09\/13\/property118\/#mortgage\">in breach of their mortgage<\/a>) in favour of a newly incorporated company. <\/p>\n\n\n\n<p><strong>The background<\/strong><\/p>\n\n\n\n<p>We published a series of reports outlining:<\/p>\n\n\n\n<ul>\n<li>their <a href=\"https:\/\/heacham.neidles.com\/2023\/09\/13\/property118\/\">basic structure<\/a>,<\/li>\n\n\n\n<li>the highly artificial <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/13\/ranjan\/\">&#8220;bridge loan&#8221;<\/a> element of the structure, which involves undisclosed payments of \u00a3500k+ to a prominent YouTuber who promotes Property118,<\/li>\n\n\n\n<li>the <a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/\">ways in which their documents and advice appear to be defective<\/a>, and<\/li>\n\n\n\n<li><a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/#:~:text=Indeed%2C%20the%20claim%20is%20made%20that%20their%20clients%20are%20%E2%80%9Cshielded%20from%20financial%20risk%E2%80%9D%20because%20the%20barristers%20carry%20%C2%A310m%20of%20professional%20indemnity%20insurance%20per%20client.\">the false claims made about the insurance carried by their in-house barrister.<\/a><\/li>\n<\/ul>\n\n\n\n<p>We believe the Property118 structure not only fails to achieve the intended tax savings, but likely triggers significant additional tax for its clients.<\/p>\n\n\n\n<p>Property118&#8217;s initial response was to <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/06\/slappedagain\/\">instruct law firm Brett Wilson LLP to threaten us with defamation proceedings<\/a>. This was backed by an opinion Property118 had obtained from a KC which they claimed upheld their structure. When we read their summary of the opinion, it became clear <a href=\"https:\/\/heacham.neidles.com\/assets\/TPAL_markup_of_KC_summary.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">the opinion failed to even discuss the key problems with the structure<\/a>. We pointed that out; then this happened:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized is-style-default\"><img fetchpriority=\"high\" decoding=\"async\" width=\"1024\" height=\"562\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-29-1024x562.png\" alt=\"\" class=\"wp-image-12643\" style=\"width:610px;height:auto\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-29-1024x562.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-29-768x422.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-29.png 1614w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Property118 then switched to <a href=\"https:\/\/www.property118.com\/what-its-like-dealing-with-dan-neidle\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">insults<\/a> and <a href=\"https:\/\/www.property118.com\/dan-neidle\/\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">weird conspiracy theories<\/a> (illustrated with a spooky AI-generated image of me). <\/p>\n\n\n\n<p><strong>The HMRC investigation<\/strong>?<\/p>\n\n\n\n<p>In the last few weeks, Property118 have been completely silent, with no response to our recent serious allegations that their <a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/\">documents and advice appear to be defective<\/a> (or indeed to any specific point that we have made).<\/p>\n\n\n\n<p>Around this time, they deleted an article defending their approach to capital gains tax &#8220;incorporation relief&#8221; (<a href=\"https:\/\/web.archive.org\/web\/20231024061009\/https:\/\/www.property118.com\/why-dan-neidle-is-wrong-about-incorporation-relief\/\" target=\"_blank\" rel=\"noreferrer noopener\">archived version here<\/a>). Incorporation relief is used by Property118 to enable their clients to move their rental properties into a company without paying capital gains tax. <\/p>\n\n\n\n<p>It seems likely this change in approach follows a 16 November <a href=\"https:\/\/www.tax.org.uk\/hmrc-one-to-many-letter-capital-gains-tax-incorporation-relief-property-businesses\">announcement from HMRC<\/a> that they have started to investigate incorporation relief claims from as far back as 2017\/18. They&#8217;re initially writing to taxpayers and inviting them to make a voluntary disclosure:<\/p>\n\n\n\n<figure data-wp-context=\"{ &quot;core&quot;:\n\t\t\t\t{ &quot;image&quot;:\n\t\t\t\t\t{   &quot;imageLoaded&quot;: false,\n\t\t\t\t\t\t&quot;initialized&quot;: false,\n\t\t\t\t\t\t&quot;lightboxEnabled&quot;: false,\n\t\t\t\t\t\t&quot;hideAnimationEnabled&quot;: false,\n\t\t\t\t\t\t&quot;preloadInitialized&quot;: false,\n\t\t\t\t\t\t&quot;lightboxAnimation&quot;: &quot;zoom&quot;,\n\t\t\t\t\t\t&quot;imageUploadedSrc&quot;: &quot;https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-27-at-09.07.49.png&quot;,\n\t\t\t\t\t\t&quot;imageCurrentSrc&quot;: &quot;&quot;,\n\t\t\t\t\t\t&quot;targetWidth&quot;: &quot;1444&quot;,\n\t\t\t\t\t\t&quot;targetHeight&quot;: &quot;1064&quot;,\n\t\t\t\t\t\t&quot;scaleAttr&quot;: &quot;&quot;,\n\t\t\t\t\t\t&quot;dialogLabel&quot;: &quot;Enlarged image&quot;\n\t\t\t\t\t}\n\t\t\t\t}\n\t\t\t}\" data-wp-interactive class=\"wp-block-image size-large is-resized is-style-default wp-lightbox-container\"><img decoding=\"async\" width=\"1024\" height=\"755\" data-wp-effect--setStylesOnResize=\"effects.core.image.setStylesOnResize\" data-wp-effect=\"effects.core.image.setButtonStyles\" data-wp-init=\"effects.core.image.initOriginImage\" data-wp-on--click=\"actions.core.image.showLightbox\" data-wp-on--load=\"actions.core.image.handleLoad\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-27-at-09.07.49-1024x755.png\" alt=\"Check your incorporation relief claim is correct\nIn your 2017 to 2018 Self Assessment return, you declared a disposal of your property interests but stated no Capital\nGains Tax (CGT) was due because incorporation relief was applied.\nInformation we hold suggests that too much incorporation relief may have been applied. This may mean you haven\u2019t\npaid enough CGT. This can happen if you\u2019ve incorrectly calculated the amount of relief available to you.\nWhat you need to do now\nPlease check that you\u2019ve correctly calculated the incorporation relief available to you. You may need to seek advice\nfrom your tax advisor if you are unsure.\nSome areas you may want to check\nPlease check:\n\u2022 the capital gain arising on incorporation was not greater than the value of the property business that was\ntransferred\n\u2022 when calculating the incorporation relief available to you, that the amount of any gain held over didn\u2019t exceed the\nvalue of any shares received \u2013 please go to GOV.UK and search \u2018CG65640\u2019 and \u2018CG65765\u2019 for the HMRC\nmanuals which show how to calculate this and an example where relief is restricted.\n\u2022 that your calculation of the incorporation relief available to you didn\u2019t include any other type of consideration apart\nfrom shares received in exchange for the property business - for example, a sum credited to director\u2019s loan\naccount.\nTo find out more, go to GOV.UK and search \u2018Incorporation Relief\u2019. Further information is available in HMRC manuals\nwhich you can find by going to GOV.UK and searching \u2018CG65740\u2019 and \u2018CG65765\u2019.\nIf you need to disclose an error\nIf you find that you have made an error and your calculation and tax liability is incorrect, you will need to submit a\ndisclosure to HMRC. To do this, please email us at responseteam5@hmrc.gov.uk with details of the gain arising on\nincorporation\" class=\"wp-image-12644\" style=\"width:802px;height:auto\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-27-at-09.07.49-1024x755.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-27-at-09.07.49-768x566.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-27-at-09.07.49.png 1444w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><button\n\t\t\tclass=\"lightbox-trigger\"\n\t\t\ttype=\"button\"\n\t\t\taria-haspopup=\"dialog\"\n\t\t\taria-label=\"Enlarge image: Check your incorporation relief claim is correct\nIn your 2017 to 2018 Self Assessment return, you declared a disposal of your property interests but stated no Capital\nGains Tax (CGT) was due because incorporation relief was applied.\nInformation we hold suggests that too much incorporation relief may have been applied. This may mean you haven\u2019t\npaid enough CGT. This can happen if you\u2019ve incorrectly calculated the amount of relief available to you.\nWhat you need to do now\nPlease check that you\u2019ve correctly calculated the incorporation relief available to you. You may need to seek advice\nfrom your tax advisor if you are unsure.\nSome areas you may want to check\nPlease check:\n\u2022 the capital gain arising on incorporation was not greater than the value of the property business that was\ntransferred\n\u2022 when calculating the incorporation relief available to you, that the amount of any gain held over didn\u2019t exceed the\nvalue of any shares received \u2013 please go to GOV.UK and search \u2018CG65640\u2019 and \u2018CG65765\u2019 for the HMRC\nmanuals which show how to calculate this and an example where relief is restricted.\n\u2022 that your calculation of the incorporation relief available to you didn\u2019t include any other type of consideration apart\nfrom shares received in exchange for the property business - for example, a sum credited to director\u2019s loan\naccount.\nTo find out more, go to GOV.UK and search \u2018Incorporation Relief\u2019. Further information is available in HMRC manuals\nwhich you can find by going to GOV.UK and searching \u2018CG65740\u2019 and \u2018CG65765\u2019.\nIf you need to disclose an error\nIf you find that you have made an error and your calculation and tax liability is incorrect, you will need to submit a\ndisclosure to HMRC. To do this, please email us at responseteam5@hmrc.gov.uk with details of the gain arising on\nincorporation\"\n\t\t\tdata-wp-on--click=\"actions.core.image.showLightbox\"\n\t\t\tdata-wp-style--right=\"context.core.image.imageButtonRight\"\n\t\t\tdata-wp-style--top=\"context.core.image.imageButtonTop\"\n\t\t>\n\t\t\t<svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"12\" height=\"12\" fill=\"none\" viewBox=\"0 0 12 12\">\n\t\t\t\t<path fill=\"#fff\" d=\"M2 0a2 2 0 0 0-2 2v2h1.5V2a.5.5 0 0 1 .5-.5h2V0H2Zm2 10.5H2a.5.5 0 0 1-.5-.5V8H0v2a2 2 0 0 0 2 2h2v-1.5ZM8 12v-1.5h2a.5.5 0 0 0 .5-.5V8H12v2a2 2 0 0 1-2 2H8Zm2-12a2 2 0 0 1 2 2v2h-1.5V2a.5.5 0 0 0-.5-.5H8V0h2Z\" \/>\n\t\t\t<\/svg>\n\t\t<\/button>        <div data-wp-body=\"\" class=\"wp-lightbox-overlay zoom\"\n            data-wp-bind--role=\"selectors.core.image.roleAttribute\"\n            data-wp-bind--aria-label=\"selectors.core.image.dialogLabel\"\n            data-wp-class--initialized=\"context.core.image.initialized\"\n            data-wp-class--active=\"context.core.image.lightboxEnabled\"\n            data-wp-class--hideAnimationEnabled=\"context.core.image.hideAnimationEnabled\"\n            data-wp-bind--aria-modal=\"selectors.core.image.ariaModal\"\n            data-wp-effect=\"effects.core.image.initLightbox\"\n            data-wp-on--keydown=\"actions.core.image.handleKeydown\"\n            data-wp-on--touchstart=\"actions.core.image.handleTouchStart\"\n            data-wp-on--touchmove=\"actions.core.image.handleTouchMove\"\n            data-wp-on--touchend=\"actions.core.image.handleTouchEnd\"\n            data-wp-on--click=\"actions.core.image.hideLightbox\"\n            tabindex=\"-1\"\n            >\n                <button type=\"button\" aria-label=\"Close\" style=\"fill: var(--wp--preset--color--contrast)\" class=\"close-button\" data-wp-on--click=\"actions.core.image.hideLightbox\">\n                    <svg xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\" width=\"20\" height=\"20\" aria-hidden=\"true\" focusable=\"false\"><path d=\"M13 11.8l6.1-6.3-1-1-6.1 6.2-6.1-6.2-1 1 6.1 6.3-6.5 6.7 1 1 6.5-6.6 6.5 6.6 1-1z\"><\/path><\/svg>\n                <\/button>\n                <div class=\"lightbox-image-container\">\n<figure class=\"wp-block-image size-large is-resized is-style-default responsive-image\"><img decoding=\"async\" data-wp-bind--src=\"context.core.image.imageCurrentSrc\" data-wp-style--object-fit=\"selectors.core.image.lightboxObjectFit\" src=\"\" alt=\"Check your incorporation relief claim is correct\nIn your 2017 to 2018 Self Assessment return, you declared a disposal of your property interests but stated no Capital\nGains Tax (CGT) was due because incorporation relief was applied.\nInformation we hold suggests that too much incorporation relief may have been applied. This may mean you haven\u2019t\npaid enough CGT. This can happen if you\u2019ve incorrectly calculated the amount of relief available to you.\nWhat you need to do now\nPlease check that you\u2019ve correctly calculated the incorporation relief available to you. You may need to seek advice\nfrom your tax advisor if you are unsure.\nSome areas you may want to check\nPlease check:\n\u2022 the capital gain arising on incorporation was not greater than the value of the property business that was\ntransferred\n\u2022 when calculating the incorporation relief available to you, that the amount of any gain held over didn\u2019t exceed the\nvalue of any shares received \u2013 please go to GOV.UK and search \u2018CG65640\u2019 and \u2018CG65765\u2019 for the HMRC\nmanuals which show how to calculate this and an example where relief is restricted.\n\u2022 that your calculation of the incorporation relief available to you didn\u2019t include any other type of consideration apart\nfrom shares received in exchange for the property business - for example, a sum credited to director\u2019s loan\naccount.\nTo find out more, go to GOV.UK and search \u2018Incorporation Relief\u2019. Further information is available in HMRC manuals\nwhich you can find by going to GOV.UK and searching \u2018CG65740\u2019 and \u2018CG65765\u2019.\nIf you need to disclose an error\nIf you find that you have made an error and your calculation and tax liability is incorrect, you will need to submit a\ndisclosure to HMRC. To do this, please email us at responseteam5@hmrc.gov.uk with details of the gain arising on\nincorporation\" class=\"wp-image-12644\" style=\"width:802px;height:auto\"\/><\/figure>\n<\/div>\n                <div class=\"lightbox-image-container\">\n<figure class=\"wp-block-image size-large is-resized is-style-default enlarged-image\"><img decoding=\"async\" data-wp-bind--src=\"selectors.core.image.enlargedImgSrc\" data-wp-style--object-fit=\"selectors.core.image.lightboxObjectFit\" src=\"\" alt=\"Check your incorporation relief claim is correct\nIn your 2017 to 2018 Self Assessment return, you declared a disposal of your property interests but stated no Capital\nGains Tax (CGT) was due because incorporation relief was applied.\nInformation we hold suggests that too much incorporation relief may have been applied. This may mean you haven\u2019t\npaid enough CGT. This can happen if you\u2019ve incorrectly calculated the amount of relief available to you.\nWhat you need to do now\nPlease check that you\u2019ve correctly calculated the incorporation relief available to you. You may need to seek advice\nfrom your tax advisor if you are unsure.\nSome areas you may want to check\nPlease check:\n\u2022 the capital gain arising on incorporation was not greater than the value of the property business that was\ntransferred\n\u2022 when calculating the incorporation relief available to you, that the amount of any gain held over didn\u2019t exceed the\nvalue of any shares received \u2013 please go to GOV.UK and search \u2018CG65640\u2019 and \u2018CG65765\u2019 for the HMRC\nmanuals which show how to calculate this and an example where relief is restricted.\n\u2022 that your calculation of the incorporation relief available to you didn\u2019t include any other type of consideration apart\nfrom shares received in exchange for the property business - for example, a sum credited to director\u2019s loan\naccount.\nTo find out more, go to GOV.UK and search \u2018Incorporation Relief\u2019. Further information is available in HMRC manuals\nwhich you can find by going to GOV.UK and searching \u2018CG65740\u2019 and \u2018CG65765\u2019.\nIf you need to disclose an error\nIf you find that you have made an error and your calculation and tax liability is incorrect, you will need to submit a\ndisclosure to HMRC. To do this, please email us at responseteam5@hmrc.gov.uk with details of the gain arising on\nincorporation\" class=\"wp-image-12644\" style=\"width:802px;height:auto\"\/><\/figure>\n<\/div>\n                <div class=\"scrim\" style=\"background-color: var(--wp--preset--color--base)\" aria-hidden=\"true\"><\/div>\n        <\/div><\/figure>\n\n\n\n<p>It&#8217;s the third bullet here which kills the Property118 scheme. Property118 create a director loan (<a href=\"https:\/\/heacham.neidles.com\/2023\/10\/13\/ranjan\/\">through a very peculiar arrangement<\/a>), and this means that some capital gains tax will always be due, as CGT <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/capital-gains-manual\/cg65740#:~:text=The%20balance%20of%20aggregate%20net%20gains%2C%20that%20is%2C%20the%20proportion%20attributable%20to%20consideration%20other%20than%20shares%2C%20is%20chargeable%20for%20the%20tax%20year%20in%20which%20the%20disposal%20of%20the%20assets%20took%20place.\">will be charged on the proportion of the sale consideration that isn&#8217;t shares<\/a>.<sup class=\"modern-footnotes-footnote \" data-mfn=\"2\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-2\">2<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-2\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"2\">It&#8217;s very clear in <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/capital-gains-manual\/cg65760\">this HMRC example<\/a>.<\/span> From the client files we&#8217;ve reviewed, it seems Property118 did not appreciate this, and told their clients there would be no capital gains tax at all.<sup class=\"modern-footnotes-footnote \" data-mfn=\"3\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-3\">3<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-3\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"3\">Our analysis goes further, and says that there are several good reasons to doubt incorporation relief applies at all. We expect HMRC will take these points, in the fullness of time, but for now is applying the much easier calculation point, given that it&#8217;s just arithmetic.<\/span><\/p>\n\n\n\n<p>HMRC isn&#8217;t usually able to open an investigation (a &#8220;discovery assessment&#8221;) more than four years after the event. But they can go back <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/enquiry-manual\/em3220#:~:text=The%20time%20limit%20is%20extended%20to%206%20years%20where%20the%20discovery%20assessment%20behaviour%20linked%20to%20the%20loss%20of%20tax%20was%20caused%20by%20carelessness%20by%20the%20taxpayer%20or%20a%20person%20acting%20on%20their%20behalf.\">six years when a taxpayer (or their agent) has been &#8220;careless&#8221;<\/a>. If we are right that Property118 did miss this fundamental point, then that would probably constitute &#8220;carelessness&#8221;, and that may explain why HMRC believe they can go back to 2017\/18.<\/p>\n\n\n\n<p>We therefore believe, on the basis of the HMRC letter coinciding with the silence from Property 118, that they are under HMRC investigation, or expect to be shortly. If that&#8217;s right, this will probably be the start of a long process of HMRC picking apart Property118&#8217;s structure. They&#8217;ll start with 2017\/18 and then roll forward to later years (probably rather slowly, but making sure they don&#8217;t miss the six year deadline).<sup class=\"modern-footnotes-footnote \" data-mfn=\"4\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-4\">4<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-4\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"4\">If Property118 tell us they&#8217;re not aware of any active investigation we will of course update this article; but Property118 would then have to explain why they believe the 16 November HMRC letter doesn&#8217;t impact their director loan structure.<\/span><\/p>\n\n\n\n<p>I expect this letter will be going to many people who claimed incorporation relief in 2017\/18, even if not a client of Property118, and even if not a user of a &#8220;scheme&#8221; of any kind. Anyone receiving it should obtain tax advice, although if this was a &#8220;normal&#8221; incorporation then they shouldn&#8217;t need specialist tax investigation advice in the first instance.<\/p>\n\n\n\n<p><strong>What clients should do<\/strong><\/p>\n\n\n\n<p>Property118 <a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/#:~:text=There%20are%20no%20risk%20warnings%20in%20the%20Cotswold%20Barristers%20(or%20Property118)%20advice%20we%20have%20seen.\" target=\"_blank\" rel=\"noreferrer noopener\">failed to alert its clients<\/a> that their structure carried any risk<sup class=\"modern-footnotes-footnote \" data-mfn=\"5\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-5\">5<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-5\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"5\">Normal legal and tax advisers always tell you about the risk of a structure going wrong, even when it&#8217;s a simple and straightforward arrangement. In 2017, the Court of Appeal&nbsp;<a href=\"https:\/\/www.bailii.org\/ew\/cases\/EWCA\/Civ\/2017\/2056.html\" target=\"_blank\" rel=\"noreferrer noopener\">found an adviser negligent<\/a>&nbsp;for failing to warn of the risk of a structure, even when the advice was not itself negligent.<\/span>, prepared documentation that had <a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/#:~:text=A%20defective%20trust%20document\">serious errors<\/a>, made <a href=\"https:\/\/heacham.neidles.com\/2023\/11\/09\/badly\/#:~:text=Indeed%2C%20the%20claim%20is%20made%20that%20their%20clients%20are%20%E2%80%9Cshielded%20from%20financial%20risk%E2%80%9D%20because%20the%20barristers%20carry%20%C2%A310m%20of%20professional%20indemnity%20insurance%20per%20client.\">false claims<\/a> that their in-house barrister&#8217;s insurance meant clients were &#8220;shielded from financial risk&#8221;, and got the fundamentals of incorporation relief badly wrong.<\/p>\n\n\n\n<p>Affected clients should sack Property118 and appoint an appropriately qualified independent accountant or lawyer.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"lt4l\">Less Tax for Landlords<\/h2>\n\n\n<p>Less Tax for Landlords sold a scheme that involved landlords declaring a trust over their rental properties in favour of a newly incorporated limited liability partnership.<\/p>\n\n\n\n<p><strong>The background<\/strong><\/p>\n\n\n\n<p><a href=\"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/\">We published a report on 4 October 2023<\/a> saying that, in our view, the structure failed to achieve its objectives and likely triggered additional tax. Like Property118, it also likely triggered a breach of their clients&#8217; mortgages; Less Tax for Landlords&#8217; <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/#:~:text=%E2%80%9CWhilst%20having%20a%20similar%20impact%20%5Bto%20Property118%5D%2C%20we%20do%20not%20use%20a%20declaration%20of%20trust%2C%20just%20a%20simple%20letter%20of%20trust.%20The%20relationship%20between%20the%20individual%20member%20and%20the%20LLP%20is%20registered%20with%20HMRC%20via%20the%20Trust%20Registration%20Service.%E2%80%9D\" target=\"_blank\" rel=\"noreferrer noopener\">response to this was bizarre<\/a>.<\/p>\n\n\n\n<p>More than that, the structure was <strong>inexplicable<\/strong>. Property118 made mistakes, but we could see how they made those mistakes. Less Tax for Landlords took positions with, it seems, no justification at all.  It is possible that the structure was fraudulent. We will be writing more about this soon.<\/p>\n\n\n\n<p>On the same day we published our report, HMRC took the unusual step of <a href=\"https:\/\/www.gov.uk\/guidance\/property-business-arrangements-involving-hybrid-partnerships-spotlight-63\">issuing a &#8220;Spotlight&#8221;<\/a> saying that the scheme doesn&#8217;t work. <\/p>\n\n\n\n<p><strong>The HMRC investigation?<\/strong><\/p>\n\n\n\n<p>The week after the Spotlight, HMRC started <a href=\"https:\/\/www.tax.org.uk\/hmrc-one-to-many-letters-concerning-spotlight-63-llp-property-tax-planning\" target=\"_blank\" rel=\"noreferrer noopener\">writing to affected taxpayers and agents<\/a> advising them to fully disclose their position by 31 January 2024 and withdraw from the scheme.<\/p>\n\n\n\n<p>Less Tax for Landlords are not admitting wrongdoing and are continuing to represent their clients. It&#8217;s an impossible conflict of interest.<sup class=\"modern-footnotes-footnote \" data-mfn=\"6\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-6\">6<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-6\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"6\">Most of the people who run Less Tax for Landlords are unregulated, and the concept of a &#8220;conflict of interest&#8221; is likely unproblematic for them.<\/span> It&#8217;s probably in their clients&#8217; interests to say that they were mis-sold a scheme which had no technical basis &#8211; they may then be able to avoid penalties, or even argue that the scheme should be disregarded. Less Tax for Landlords are obviously not going to run that argument. They&#8217;ve a clear incentive to claim that HMRC are wrong and their scheme works, and to keep the ball rolling for years. <\/p>\n\n\n\n<p>So it&#8217;s no surprise that they&#8217;ve written to their clients saying they&#8217;ve approached a KC for an opinion:<\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-style-default\"><img decoding=\"async\" width=\"1024\" height=\"193\" src=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-12-at-10.34.15-1024x193.png\" alt=\"\" class=\"wp-image-12461\" srcset=\"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-12-at-10.34.15-1024x193.png 1024w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-12-at-10.34.15-768x144.png 768w, https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/Screenshot-2023-11-12-at-10.34.15.png 1936w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>We are very sceptical that this is a genuine attempt to establish the correct position. That position is very obvious, and wouldn&#8217;t require &#8220;hundreds of pages&#8221; of analysis. Most likely the KC is being asked to construct a series of desperate arguments to bolster a scheme which never had any prospect of success. Other promoters of failed schemes have spent years in hopeless litigation, funded by the same clients they mis-sold their schemes to. If that&#8217;s what Less Tax for Landlords are planning, it&#8217;s a disgrace.<\/p>\n\n\n\n<p><strong>What clients should do<\/strong><\/p>\n\n\n\n<p>Less Tax for Landlords failed to alert its clients that its structure carried any risk, and got a <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/#:~:text=as%20%E2%80%9Calmost%20unmortgageable%E2%80%9D.-,Inheritance%20tax,-Less%20Tax%20for\" target=\"_blank\" rel=\"noreferrer noopener\">series<\/a> of <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/#:~:text=twenty%20years.-,Mixed%20partnership%20rules,-A%20key%20element\" target=\"_blank\" rel=\"noreferrer noopener\">tax points<\/a> <a href=\"https:\/\/heacham.neidles.com\/2023\/10\/05\/lt4f\/#:~:text=Your%20market%20value%20is%20re%2Dbased.\" target=\"_blank\" rel=\"noreferrer noopener\">utterly wrong<\/a> in a way that nobody has been able to explain. They should be helping their clients exit the structure as painlessly as possible; instead they are scrabbling around, trying to defend their hopeless position.<\/p>\n\n\n\n<p>Affected clients should sack Less Tax for Landlords and appoint an appropriately qualified independent accountant or lawyer. The looming 31 January 2024 deadline means this is now <strong>urgent<\/strong>.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"which-adviser-should-landlords-trust\">Which adviser should landlords trust?<\/h2>\n\n\n<p><a href=\"https:\/\/heacham.neidles.com\/2023\/09\/15\/section24\/\" target=\"_blank\" rel=\"noreferrer noopener\">I made some suggestions here <\/a>as to how to pick an adviser for a straightforward incorporation, and avoid the cowboys &#8211; the same holds true for any normal business transaction. Unfortunately in this case it&#8217;s a bit more specialised; there are advisers who&#8217;d be brilliant at a normal incorporation, and advisers who&#8217;d be brilliant at unpicking a disastrous structure; often they are not the same people.<\/p>\n\n\n\n<p>I can&#8217;t recommend any particular adviser &#8211; it feels like a potential conflict of interest &#8211; but here are some suggestions:<\/p>\n\n\n\n<ul>\n<li>HMRC suggest that affected taxpayers contact them directly. They have to say this, but it&#8217;s not a good idea. I would strongly advise speaking to a tax adviser first.<\/li>\n\n\n\n<li>You may improve your position if (after taking advice) you approach HMRC yourself, rather than waiting for HMRC to contact you. In particular, it can <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/compliance-handbook\/ch403202#:~:text=A%20disclosure%20is%20unprompted%20if%20it%20is%20made%20at%20a%20time%20when%20the%20person%20making%20it%20has%20no%20reason%20to%20believe%20that%20HMRC%20have%20discovered%20or%20are%20about%20to%20discover%20the%20inaccuracy%2C%20under%2Dassessment%2C%20failure%20to%20notify%2C%20deliberate%20withholding%20of%20information%20or%20wrongdoing.%20Otherwise%20it%20is%20prompted.\">reduce penalties<\/a>.<\/li>\n\n\n\n<li>The adviser should be familiar with technical tax and also HMRC investigations. Not necessarily a litigator (the matter is unlikely to end up in court), but certainly someone who&#8217;s familiar with representing clients through the investigation process.<\/li>\n\n\n\n<li>Your adviser will have to become familiar with the details of the Property118\/LT4L scheme &#8211; it will be easier, cheaper and faster if they&#8217;ve already been through this with another client. <\/li>\n\n\n\n<li>It therefore makes sense to find a law firm or accounting firm that&#8217;s already advising other Property118\/LT4L clients and, ideally, that has already achieved success in helping clients extricate themselves from the structures.<\/li>\n\n\n\n<li>If you are financially\/legally sophisticated you could consider directly instructing a barrister from a tax set but, again, it should be someone familiar with the issues.<\/li>\n\n\n\n<li>Either way, only instruct advisers who are regulated (principally that means CIOT or ICAEW accountants, or solicitors or barristers).<\/li>\n\n\n\n<li>If your phone call is answered by a salesman, put down the phone. You should be speaking to an actual qualified adviser.<\/li>\n\n\n\n<li>If anyone tries to sell you a complicated structure then you should be very suspicious. People who bought into avoidance schemes in the past have then been sold schemes that supposedly escape HMRC attacks on the original schemes. <a href=\"https:\/\/www.gov.uk\/guidance\/disguised-remuneration-schemes-claiming-to-avoid-the-new-loan-charge-spotlight-36\">Those new schemes, inevitably, also failed.<\/a><\/li>\n\n\n\n<li>If your properties are in Scotland your advisers will need to consider the different nature of Scottish land law. I would use a Scottish firm, or at least a firm very familiar with Scottish real estate tax.<sup class=\"modern-footnotes-footnote \" data-mfn=\"7\" data-mfn-post-scope=\"0000000000002f4e0000000000000000_12477\"><a href=\"javascript:void(0)\"  role=\"button\" aria-pressed=\"false\" aria-describedby=\"mfn-content-0000000000002f4e0000000000000000_12477-7\">7<\/a><\/sup><span id=\"mfn-content-0000000000002f4e0000000000000000_12477-7\" role=\"tooltip\" class=\"modern-footnotes-footnote__note\" tabindex=\"0\" data-mfn=\"7\">Note that where you are, and where your company is, isn&#8217;t relevant &#8211; just the location of the properties. It is unclear Property118\/LT4L ever considered Scots law issues.<\/span><\/li>\n\n\n\n<li>And if your properties are in Scotland or Wales then your advisers will need to consider the equivalents of stamp duty land tax &#8211; LBTT and LTT. Again, it makes sense to instruct either a Scottish\/Welsh adviser, or someone very familiar with Scottish\/Welsh land tax.<\/li>\n\n\n\n<li>As with any professional, you should ask for references (in this case clients may be unwilling to give references, but it&#8217;s still worth asking).<\/li>\n<\/ul>\n\n\n\n<p>Tax investigations are <strong>slow<\/strong>, with HMRC often taking many months to reply to correspondence. Affected landlords could well be in a difficult and uncertain position for several years.<\/p>\n\n\n<h2 class=\"wp-block-heading\" id=\"can-landlords-sue-property118less-tax-for-landlords\">Can landlords sue Property118\/Less Tax for Landlords?<\/h2>\n\n\n<p>On the face of it, the hopeless nature of the LT4L scheme, and the defective documents in the Property118 scheme, suggest landlords have a potential claim for negligence against the two firms. <\/p>\n\n\n\n<p>There are already several reputable firms pursuing this. <\/p>\n\n\n\n<p>Some important notes of caution:<\/p>\n\n\n\n<ul>\n<li>There are many &#8220;claim handling&#8221; firms who are adept at self-promotion and chasing ambulances but have little or no legal expertise. I&#8217;d strongly recommend only instructing a firm with experience suing tax avoidance scheme promoters and, again, one where you are speaking to an actual adviser and not a salesperson.<\/li>\n\n\n\n<li>Many (perhaps most) legal claims against promoters of tax avoidance schemes have failed because they were made too late. So it is important you don&#8217;t wait until everything is resolved with HMRC &#8211; it&#8217;s likely a good idea to assert a claim now (or at least very soon). <\/li>\n\n\n\n<li>It&#8217;s ideal if a firm is willing to act on a &#8220;no win no fee&#8221; basis. If that&#8217;s not possible, please do make sure their fees are affordable, or you risk throwing good money after bad. <\/li>\n\n\n\n<li>The best case is that you could recover wasted fees and any additional taxes\/costs the landlord incurred. You are unlikely to be able to obtain compensation for the tax benefit you were promised.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p> <\/p>\n\n\n\n<div style=\"height:100px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<ul class=\"modern-footnotes-list \"><li><span>1<\/span><div>HMRC&#8217;s obligation of taxpayer confidentiality means that it will never say that a person is under investigation. HMRC can undertake an enquiry and collect large amounts of tax and penalties, and this won&#8217;t become public. Usually it is only if the taxpayer appeals, and the matter reaches a tribunal, that the name of the taxpayer becomes publicly known. However in some cases, as here, we can infer from surrounding circumstances that an HMRC investigation is likely to be underway.<\/div><\/li><li><span>2<\/span><div>It&#8217;s very clear in <a href=\"https:\/\/www.gov.uk\/hmrc-internal-manuals\/capital-gains-manual\/cg65760\">this HMRC example<\/a>.<\/div><\/li><li><span>3<\/span><div>Our analysis goes further, and says that there are several good reasons to doubt incorporation relief applies at all. We expect HMRC will take these points, in the fullness of time, but for now is applying the much easier calculation point, given that it&#8217;s just arithmetic.<\/div><\/li><li><span>4<\/span><div>If Property118 tell us they&#8217;re not aware of any active investigation we will of course update this article; but Property118 would then have to explain why they believe the 16 November HMRC letter doesn&#8217;t impact their director loan structure.<\/div><\/li><li><span>5<\/span><div>Normal legal and tax advisers always tell you about the risk of a structure going wrong, even when it&#8217;s a simple and straightforward arrangement. In 2017, the Court of Appeal&nbsp;<a href=\"https:\/\/www.bailii.org\/ew\/cases\/EWCA\/Civ\/2017\/2056.html\" target=\"_blank\" rel=\"noreferrer noopener\">found an adviser negligent<\/a>&nbsp;for failing to warn of the risk of a structure, even when the advice was not itself negligent.<\/div><\/li><li><span>6<\/span><div>Most of the people who run Less Tax for Landlords are unregulated, and the concept of a &#8220;conflict of interest&#8221; is likely unproblematic for them.<\/div><\/li><li><span>7<\/span><div>Note that where you are, and where your company is, isn&#8217;t relevant &#8211; just the location of the properties. It is unclear Property118\/LT4L ever considered Scots law issues.<\/div><\/li><\/ul>\n","protected":false},"excerpt":{"rendered":"<p>We recently wrote about two landlord tax avoidance outfits: Less Tax for Landlords and Property118. They together advised thousands of landlords, and avoided \u00a3100m+ of tax; we believe both firms, and their clients, are now the subject of HMRC investigations. Property118 Property118 sell a scheme that involves landlords declaring a trust over their rental properties [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":12642,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ngg_post_thumbnail":0,"footnotes":""},"categories":[141],"tags":[211,212,106],"jetpack_featured_media_url":"https:\/\/heacham.neidles.com\/wp-content\/uploads\/2023\/11\/image-28.png","_links":{"self":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12477"}],"collection":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/comments?post=12477"}],"version-history":[{"count":30,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12477\/revisions"}],"predecessor-version":[{"id":12690,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/posts\/12477\/revisions\/12690"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media\/12642"}],"wp:attachment":[{"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/media?parent=12477"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/categories?post=12477"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/heacham.neidles.com\/wp-json\/wp\/v2\/tags?post=12477"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}