HMRC has issued a clear warning to landlords: avoid tax schemes involving limited liability partnerships (LLPS) or face serious consequences. A scheme currently being marketed to rental property owners suggests using an LLP as a conduit to transfer properties into a limited company, claiming it can reduce capital gains tax (CGT), inheritance tax (IHT), and stamp duty land tax (SDLT).
The structure typically involves incorporating the property business into an LLP and transferring the rental properties at market value, often with significant unrealised gains. The LLP is then liquidated through a member’s voluntary liquidation (MVL), with the properties passed to a company owned by the landlord or related parties. Promoters claim this results in significant tax savings, but HMRC says otherwise.
According to HMRC, these arrangements do not work. New legislation (Section 59A of the Taxation of Chargeable Gains Act 1992), which came into force on 30 October 2024, treats the landlord as having made a disposal immediately before contributing the asset to the LLP, meaning CGT will apply on any gains.
In addition, any potential use of SDLT and IHT reliefs under partnership rules is now under scrutiny, and the General Anti-Abuse Rule (GAAR) could apply, carrying a possible 60% penalty for transactions after 14 September 2016.
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