HMRC describes the scheme, which it says is being marketed to landlords as a tax avoidance scheme, in Spotlight 69.  The scheme is intended to reduce or avoid the following taxes:

• CGT, on the disposal of the properties to the LLP due to incorporation relief and because there is a tax-free uplift in the CGT base cost of the properties on their disposal by the LLP;
• stamp duty land tax (SDLT), on the transfer of the properties to the LLP, or on the subsequent transfer to the company, due to the provisions applying with regard to partnerships; and
• inheritance tax, due to the potential benefits of business property relief (BPR).

However, HMRC believes that the scheme does not work as intended because of the following tax regulations and rules.

• With effect for MVLs entered into on or after 30 October 2024, s59AA, Taxation of Chargeable Gains Act 1992 applies with the result that the individual is treated as having disposed of the properties for CGT purposes immediately before the transfer to the LLP. This measure was first announced at the Autumn Budget 2024.
• As the scheme relies on pre-arranged steps taken by these schemes, s75A, Finance Act 2003 applies to prevent the reduction or elimination of a charge to SDLT.
• The property rental business may be within the exclusion from BPR for “making or holding investments” at s105(3), Inheritance Tax Act 1984.
• The general anti-abuse rule (GAAR) may apply.

HMRC also warns that non-natural persons owning residential property may be subject to the annual tax on enveloped dwellings (ATED). ICAEW’s recent article on the 30 April ATED deadline explains this in more detail.

HMRC’s advice to anyone using the scheme is to withdraw from it and settle their tax affairs by emailing HMRC. The Spotlight also sets out the implications for promoters of the scheme.