HMRC has made the unusual step of warning landlords not to use widely-routed tax avoidance schemes which it says are being marketed to buy-to-let investors as a way to save Capital Gains Tax (CGT).

The new advice says the schemes, which enable landlords to transfer their property business to a company using a Limited Liability Partnership (LLP) to avoid the tax, ‘do not work’, saying that ‘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’.

The scheme, which is complicated to say the least, requires sole trader landlords to set up an LLP partnership into which they transfer their properties at market value including any capital gain and then, after a short period, put the LLP into ‘Members’ Voluntary Liquidation’.

The properties are then sold to a limited company also set up by the landlord or one of their relatives.

Property transfer

Promoters of these schemes often make the claim, among several others, that by transferring properties to an LLP in this way, they enable landlords to transfer properties into a company tax-free without needing to apply CGT incorporation relief.

Such schemes have been widely promoted including by one landlord website, but HMRC is now closing many of the loopholes that it has been claimed these schemes take advantage of, meaning both those considering using one ‘should not’, and that those who have already set an LLP up for this purpose, must now ‘take action’.

“If you think you’re already involved in these schemes and want to get out, HMRC can help,” it says.

“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.”

The new rules and advice applies to any landlord who has entered into such a scheme after 30th October 2024.

Read the advice in full.