News from 27 April 2026
HMRC’s Spotlight 63a warns about property tax arrangements involving hybrid partnerships, limited liability partnerships and indemnities. HMRC says the arrangements do not work as promoted and can leave landlords owing tax, interest, penalties and fees.
What HMRC says the arrangement claims to do
According to HMRC, the arrangements are promoted as a way for landlords to reduce the tax payable on property profits and to increase deductions for mortgage interest. The typical structure described by HMRC involves a landlord or family member creating a limited company, setting up an LLP with that company as a corporate member, and transferring beneficial interests in rental properties to the LLP.
Indemnities are then said to make the corporate member responsible for outstanding mortgage liabilities. The corporate member is treated by the promoter as having made a capital contribution to the LLP, and profits can be allocated in a way that routes a share to the company.
HMRC says landlords may be told this reduces tax because the company can claim finance cost deductions and pay Corporation Tax on its net profit share, rather than the profits being taxed on the landlord at higher or additional Income Tax rates.
HMRC’s view is that the scheme does not work
The important part of the update is HMRC’s position. It says the scheme does not work and that landlords using these arrangements could end up paying more tax than they tried to avoid, plus interest, penalties and fees.
HMRC points to several areas of legislation, including mixed member partnership rules, anti-avoidance rules that can treat transferred income as the landlord’s own income, Capital Gains Tax treatment for LLPs carrying on a business with a view to profit, Stamp Duty Land Tax rules on property transfers and profit entitlement changes, and Annual Tax on Enveloped Dwellings issues where company members hold interests in UK residential property above the relevant threshold.
An independent tax adviser can explain how these points affect an arrangement. The warning is that the apparent tax saving may depend on assumptions HMRC is likely to challenge. It also shows how one restructuring proposal can create several separate tax and filing issues at the same time.
If you are affected
If you have been offered or joined an arrangement like this, ask an independent tax adviser who is not connected with the promoter to review it. Keep the promotional material, advice and tax records. HMRC’s guidance explains how to contact it about settling tax affairs.
