Spotlight highlights scheme aimed at landlords

HMRC has issued Spotlight 63 concerning an avoidance scheme marketed to landlords which claims to bypass mortgage interest relief restrictions, reduce taxable profits from the property business and reduce capital gains tax and inheritance tax.

Broadly, the scheme claims to work as follows:

• individual landlords set up a limited company and an LLP, and transfer their properties to the LLP;
• the individuals and the company are the members of the LLP (the company being the corporate member); and
• the LLP allocates profits to members on a discretionary basis, ensuring individual members remain basic-rate taxpayers - any remaining profits are allocated to the corporate member which also claims a deduction for finance costs.

HMRC’s view is that the arrangements are caught by existing legislation.

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