tax scheme panicking landlords, Landlords who used a tax advice firm face an anxious wait for clarity after it was issued a notice by HMRC to cease selling its tax plans.

tax scheme panicking landlords, Landlords who used a tax advice firm face an anxious wait for clarity after it was issued a notice by HMRC to cease selling its tax plans.

Property118, which serves as a popular forum for property investors but also provides tax solutions in partnership with Cotswold Barristers, was served with a “stop notice” by the taxman last month, meaning it must immediately stop promoting its schemes.

This follows a decision in February to issue what’s known as “reference numbers” to its arrangements, a signal that HMRC believes the schemes equate to tax avoidance – something the firm denies.

For the past decade, many buy-to-let investors have sought ways to move their property portfolios into company ownership following changes to the tax regime which was a disadvantage to landlords who own their properties in their own names.

Firms like Property118 claimed to offer a way round the stamp duty and capital gains tax which would usually arise from such a transfer – but many of its clients have now been warned to expect their affairs to be scrutinised.

i is aware of one client who was given a £666,000 “discovery assessment” – a notice that HMRC believes you have not paid tax that you should have done – in March, related to unpaid capital gains tax, dating back several years.

Mark Alexander, the firm’s founder, said the firm had not offered “advice”, merely making recommendations and referring customers to barristers. Clients had always been encouraged to involve their own accountants and seek independent advice, he added.

Its arrangements were not tax avoidance, he said, and “fell squarely within the spirit of what legislation and HMRC concessions were designed to achieve”.

The firm has appealed both the stop notice and the issuance of reference numbers and, at the time of writing, had crowdfunded more than £250,000 to pay for a legal defence.

The firm’s arrangements have come under heavy scrutiny since September 2023, when leading tax lawyer Dan Neidle claimed its scheme would in fact increase a landlords’ tax bill by as much as 50 per cent.

Speaking to i, Neidle said: “It’s likely that all Property118 clients will be under HMRC investigation in the coming months. I’d strongly advise them to obtain independent advice from a regulated firm that wasn’t involved in creating and selling this structure.”

Since 2017 private landlords have claimed that they have been targeted by the taxman after the Government’s decision to remove the right to claim mortgage interest payments as a business expense. They were instead replaced with a 20 per cent tax credit.

The change does not apply to limited companies and therefore many landlords were seeking a way to incorporate their portfolio. This would usually lead to stamp duty and capital gains tax charges, but Property118 claimed that incorporating in the way they suggest would mean certain reliefs would apply.

In February, HMRC issued the firm with scheme reference numbers, meaning those who used the arrangement would be required to declare them on their tax return.

Then, in July, HMRC issued its stop notice and Property118 contacted most of those in its database to inform them of the development, as they were required to do so by law. This included people whose sole interaction with the firm appeared to be downloading its brochure.

Property118 has previously denied offering a “scheme” and said it has sought independent advice from a KC which confirmed the “correctness of our approach”.

Mr Alexander insisted the arrangement followed regulations. He said its critics “seem to have overlooked that this process is not indicative of any attempt at mischief, but rather the normal approach to managing financing and liquidity”.

Nevertheless, some former clients are concerned. One pensioner, who lives in the South East and has a number of rental properties, spent around £40,000 to arrange the transfer of her portfolio into trust and the release of equity, which, she was led to understand, would be free from CGT.

She has now been forced to pay another tax barrister around £6,000 to rectify the work and said she is lucky as she is yet to file her tax return for the period. She said: “If it had already gone through we would be up the creek without a paddle.”

Contact us for any support

Article Courtesy : inews.co.uk
Image courtesy : AI tool