Search results for: “embed”

Less Tax for Landlords and The Bailey Group¹ sold a landlord tax avoidance scheme involving an LLP “hybrid partnership”.² We reported back in October that the scheme was technically hopeless; HMRC has written to the clients and invited them to settle. Everyone thought the game was up.

How did Less Tax for Landlords respond to being caught? They denied there was anything wrong with their scheme, paid £100,000 to a KC known for writing tax avoidance scheme opinions, obtained an opinion which appears to be worthless, and advised their clients to disregard HMRC’s offer to make a disclosure by 31 January 2024. We expect that, as a result, their clients will incur significant penalties.

At this point the big question is whether Less Tax for Landlords are recklessly incompetent, or conducting a deliberate fraud on HMRC and their clients. Tax advisers and others will form their own view after viewing the evidence we set out below.

It’s often said that the answer to rogue tax advisers is regulation. Less Tax for Landlords’ accounting arm is regulated, by the Institute of Chartered Accountants in England & Wales. But the ICAEW shows no sign of taking any action.

Regulation isn’t working. Rogue tax advisers are taking advantage of HMRC and their own clients. The question is: what can be done?

The LT4L scheme

On 4 October 2023 we published a detailed report into a tax scheme marketed by Less Tax for Landlords, the trading name of the One Consultancy Group (OCG). The idea was:

• Landlords would declare a trust over their properties in favour of a limited liability partnership (LLP)
• The landlord and their spouse would be members of the LLP; there would also be a newly incorporated company as member, owned by the landlord/spouse
• The LLP diverts most of its profit to the company.

LT4L made some very impressive claims about the structure:

• There was no need to tell the mortgage lender.
• After two years, the structure is entirely exempt from inheritance tax thanks to business relief.³
• The diversion of LLP profits to the company means rental income is taxed at the corporate rate of 19-25%.⁴
• The trust means the landlords’ obligation to make mortgage payments “shifts to the LLP”, meaning the company as LLP member obtains full tax relief for mortgage interest. The “section 24” restriction on landlords claiming tax relief is avoided.
• No CGT or SDLT on establishment, without needing to qualify for any special reliefs.
• The properties are “rebased” for capital gains tax. In other words, when they’re sold, only the capital gain after incorporation of the LLP is taxed. Pre-incorporation gains disappear.
• Instead of taking profits out of the LLP, you can take capital out instead, and you won’t be taxed.
• There’s no need to disclose the structure to HMRC.
• If the structure triggers unexpected tax, then their clients are protected by an unusual insurance arrangement – LT4L claim they have a “written note” from their insurers stating they are happy to cover all interest, penalties and extra tax payable if HMRC do not agree with the way the structure was set up.

How the LT4L scheme fails

We couldn’t believe the scheme when we first saw it. Every aspect fails:

• Declaring a trust over the rental properties without the mortgage lender’s consent (or even telling them) will in most cases default the mortgage. The structure was described to us by an experienced broker as “almost unmortgageable”.
• Rental property businesses almost never qualify for inheritance tax business relief. The LLP structure doesn’t change that.
• The mortgage obligation doesn’t “shift to the LLP”. It remains with the landlords – who now lose their 20% credit.
• The “mixed partnership” rules mean you can’t get a tax benefit by allocating profits to a corporate partner in an LLP.
• The allocation of profits to the corporate partner means there will be up-front capital gains tax. There’s no CGT rebasing.
• SDLT will be due at the point that income profits are allocated to the corporate member. LT4L’s unusual structuring potentially results in a higher SDLT liability than would result from a simple incorporation.
• The structure can incur additional SDLT every time the profit allocation changes. LT4L’s clients could have unknowingly racked up years of SDLT liabilities.
• The structure is disclosable under DOTAS, the rules requiring tax avoidance schemes to be disclosed to HMRC. That is obvious, given that the structure was mass-marketed and its main benefit is to avoid tax.
• Members are taxed on profits as they are made; when and how they are taken out is irrelevant. This is a basic principle of LLP taxation.
• HMRC do not in fact agree with how the structure was set up, but there is no automatic payout from LT4L’s insurers. That’s because there never was a special “written note”; they just have the usual professional indemnity insurance. To get any benefit from that, an LT4L client has to lose an argument with HMRC, sue LT4L (with the insurers arguing LT4L’s case, not the client’s), and win. This is not easy, even if (as we believe) LT4L’s advice is plain wrong.

We went into the issues in detail in our report of 4 October 2023. That same day, HMRC issued a “Spotlight” saying that the scheme didn’t work,⁵ and then wrote to taxpayers and agents inviting them to make a disclosure by 31 January 2024.

Worse than just failure

Many tax avoidance schemes fail, indeed these days almost all of them do. The unique thing about Less Tax for Landlords is that nobody has been able to explain why they thought their structure worked. It’s not a case where they have an argument, and that argument is wrong. It’s that they don’t appear to have had an argument at all.⁶

We can illustrate this if we focus for the moment on the claim that the structure is exempt from inheritance tax after two years.

Here are six answers that Less Tax for Landlords provided to clients and advisers asking questions. People familiar with inheritance tax and the tax concept of “trading” will see immediately they are nonsense (The Chartered Institute of Taxation have published a clear summary of the actual position⁷). But we believe even a non-specialist will see that the explanations given are contradictory:

1. Tick boxes and have a business plan

This was the original confident claim:⁸

“[the business] is outside of your estate for inheritance tax, as long as you tick various boxes”

Why?

“because the HMRC recognizes that there is a trading relationship between you all, and that you’ve got a written business plan and that you’re managing it and that your sole purpose is not to avoid tax but to maximize your wealth to tax efficiently as possible, the whole thing becomes inheritance tax free.”

A trading relationship between the participants, a business plan, not having a tax avoidance purpose – all these things are irrelevant to whether inheritance tax applies. There are no “boxes” to tick.

2. The LLP turns into a trading business

If you don’t like that, here’s a completely different explanation:⁹

“The LLP structure that we set up is not investing in property. It does not own the property. The property is owned by the individuals. The LLP has taken advantage of that ownership and it is available… after two years, that LLP turns into a trading business according to HMRC, not according to us, according to HMRC. And at that point, after two years, the equity of those properties inside that LLP are then outside of the estate for inheritance tax after two years. “

Pure nonsense. The LLP does have beneficial ownership of the property. The LLP does not “turn into a trading business”. HMRC has certainly not said this, or anything like this.

Here’s another version of the same claim from a document LT4L sent to a client, with a badly drawn rectangle supposedly showing that something, somewhere, somehow is trading:¹⁰

3. The LLP turns rental income into trading income

Less Tax for Landlords often used this slide:

And sounded very confident:

In reality, an LLP doesn’t transform its income into trading income.

4. Gobbledegook about the equity

Some advisers asking LT4L to explain their structure received this explanation:

“The LLP holds the equity and not the properties – so it cannot be classed as investment. The owner of the properties does not qualify for BR on the properties, but on the equity.”

We have no idea what this means.

5. More trading activity is introduced

When we were researching our report, we asked LT4L how they justified their inheritance tax claims. This was their response:

“We do not work with all landlords, at least not in relation to a Mixed Partnership structure, and for those we do work with, we look to help them commercialise their operation and introduce more trading activity into their business model.”

You can’t “introduce more trading activity” into a rental property business and qualify for business relief.¹¹ So this approach would fail; however we have been unable to find any LT4L clients who were helped to “introduce more trading activity”. This statement may just have been a lie.

6. Aggressive evasion

Over the years, many tax advisers asked Less Tax for Landlords how their scheme magically qualified for business relief. That often went like this:

Or this:

That confidence has now disappeared, and Mr Gimple’s correspondence with us makes clear he never understood the technical tax basis for the structure. He tells us he relied on Vajahat Sharif who ran the associated law firm (which includes STEP qualified practitioners), and Chris Bailey, who ran the accounting and tax advisory side of the business.

Mr Sharif has told us that he and his staff don’t in fact have any tax expertise, and he never advised on any element of the hybrid partnership structure. We believe Mr Sharif when he says he has no tax expertise, because he promotes himself on LinkedIn as “Head of Terrorism, National Security, Political & Complex Crimes at Tuckers Solicitors”.¹² It is impressive that he can combine this with being “Group Head of Legal” and head of compliance for OCG Group (which owns/runs Less Tax for Landlords). We’d assume it’s two different people with the same name, but it isn’t.

Mr Sharif says he had no involvement in the LT4L tax avoidance structure. A letter was recently sent to LT4L’s clients from Sharif and the other directors concerning the structure; Mr Sharif says he didn’t authorise that letter, but hasn’t taken any steps to correct it.

Mr Bailey is a qualified accountant, but from the videos and documentation we have seen, it is apparent that he either has no tax expertise or is lying (we do not know which it is). Bailey was disciplined by the Association of Chartered Certified Accountants in 2020 for failing to provide audit files when requested. He provided a series of excuses for this: he first said he needed more time, then claimed the clients were audit-exempt, then claimed the files were offsite, and finally blamed a software issue. He was found guilty of misconduct. The ACCA accepted that the failure to disclose was not deliberate; it is not clear how they came to this conclusion.

We believe Mr Gimple, and don’t think he was dishonest. However, he had no technical tax qualifications or experience, was selling a scheme he didn’t understand, and aggressively responded to criticism from people who were qualified (without, it seems, ever wondering what precisely was going on). This strikes us as reckless.¹³

The justifications for the other key elements of the structure were equally nonsensical, with no reasonable basis ever provided for thinking capital gains were rebased, or that the diversion of income to the corporate member would escape the mixed partnership rules. Over the years, many advisers queried the structure – nobody received a coherent explanation.

And the other people who never received an explanation were LT4L’s clients. As far as we are aware, not a single LT4L ever received a technical explanation of why business relief applied, or indeed a technical explanation of any other aspects of the structure.

It is, in short, astonishing.

Why?

The LT4L structure has been the subject of widespread comment by tax professionals. We are not aware of a single adviser, anywhere in the UK, who believes the LT4L structure had any prospect of success.

At this point there are three possibilities.

• First, Less Tax for Landlords have alighted on a structure so brilliant that nobody else is able to understand it. They are right and we are all wrong.
• Second, LT4L were incompetent and negligent to an astonishing degree.
• Third, key personnel at LT4L either knew the structure didn’t work, or were wilfully blind to it not working, but sold it anyway. In other words: they defrauded both HMRC and their own clients.

We are going to discard the first possibility.

To assess the likelihood of the second and third possibilities, let’s look at how LT4L responded to the Spotlight.

LT4L’s response

Here’s what LT4L have been up to, since October, in their own words:

Less Tax for Landlords didn’t admit wrongdoing and continued to represent their clients. It’s an impossible conflict of interest.¹⁴

LT4L then admitted that the chosen counsel is Robert Venables KC.

This is an illuminating choice. Venables’ reputation is for providing opinions on avoidance schemes.¹⁵Jolyon Maugham once wrote an insightful and influential blog about the “boys who won’t say no” – the handful of tax KCs who frequently issue technically dubious opinions on avoidance schemes. Venables is generally considered to be one of those KCs. He’s not the man you go to if HMRC are unreasonably challenging your entirely commercial structure (not least because he has no credibility with HMRC).

We understand from a source that LT4L paid £100,000 for the Venables advice.

LT4L wrote to their clients last month summarising Venables’ opinion. We are publishing a copy of the LT4L letter; it is stated to be confidential, but we believe there is a public interest in publishing it, given it reveals highly unethical behaviour by LT4L. We also believe public scrutiny of LT4L’s actions is in their clients’ interests.

The first and most important thing Venables says is that clients can’t rely on his advice. If Venables gets it wrong, LT4L’s clients are stuffed:

This is standard practice for KCs writing avoidance opinions. The people who actually need to rely on the KC’s advice, can’t. This is why “the boys” happily issue opinions that other advisers wouldn’t touch – it can never come back to them.

The other key reason is that “the boys” will often make assumptions of fact which are unrealistic, and mean they are advising on a structure which is not quite the same as the actual structure. Like this:

This is not how the structure was sold to LT4L’s clients. The whole point was to allocate large amounts of income to the corporate member to obtain a tax benefit. LT4L presentations show almost all the rental income being allocated to the company, leaving the individual LLP members only enough to use up their 20% income tax bracket:

Other advisors, who are merely bad, think there is a 15% limit to the profit that can be allocated to the corporate member.¹⁶ LT4L think there is no limit:

So Venables is assuming away the actual structure, either because he has been mis-instructed, or because that’s the only way he can come to the “right” conclusion.¹⁷ Everything that follows is therefore worthless.

Mixed partnership rules

These are the rules which undo attempts to allocate income to a corporate member of an LLP/partnership which go beyond a fair return on services or capital provided. Less Tax for Landlords made a series of nonsense claims about these rules. What does Venables have to say?

 

HMRC have claimed that income which was in fact allocated to the corporate member is deemed to be taxable income of the individuals which should have been declared as such.

HMRC have mentioned the “mixed partnership” rules and the “income stream” rules.

Robert has advised us that he has seen nothing in HMRC’s arguments which justifies the view that taxable income has been under-declared and does not see how their claim can be established on either basis.

There is zero content here.

LT4L were previously very confident the rules didn’t apply as long as your “main reason” for the structure wasn’t tax avoidance and they are “used for business purposes”:

As we explained in our original report, this is not at all what the rules say. The mixed partnership rules and transfer of income streams rules clearly apply. Bailey appears to have no understanding of the legislation.

But Venables is silent on LT4L’s original justification, and provides no basis for thinking the structure works. It is possible, again, that he is misunderstanding/misdescribing the structure.

We have heard from a source that LT4L are in fact submitting client tax returns for 2022/23 on the basis there is no allocation of profits to the company. If that is correct it is very disturbing, because it suggests they know their structure is indefensible, and are conceding most/all of the benefit of the structure for future periods, but concealing this from their clients.

Any reallocation of profits can also trigger SDLT charges – more on that below.

Inheritance tax

The prospect of an inheritance tax exemption after two years was the big benefit of the LT4L structure. But on this, Venables provides no advice at all. We are aware of former LT4L clients where HMRC is asserting seven figure inheritance tax liabilities, but all LT4L have to say is:

HMRC have also raised the question of inheritance tax.

To the clients where this is a current issue, separate steps are currently ‘in progress’ with HMRC and unless you have made some gift of your rights over the LLP, Robert sees this as being currently academic. He notes that in any event your self-assessment return has nothing to do with inheritance tax.

Clients who paid thousands of pounds for advice from LT4L which claimed to enable an inheritance tax exemption, should be pretty unhappy that the issue is now described as “academic”. It’s a striking change from their breezy confidence of a few months ago.

Stamp duty land tax

Here’s what LT4L are saying about Venables’ advice:

HMRC have not claimed in their letters to us or to our clients, in the “factsheet” or in Spotlight 63 that any stamp duty land tax should have been paid on the transfers of the properties to the LLP.

Robert had advised us that no stamp duty land tax should have been due on such transfers, except perhaps in exceptional circumstances. We shall be contacting separately our clients whose circumstances may be exceptional.

It’s another bait and switch. The problem isn’t SDLT when the properties go into the structure; it’s SDLT when the profit-sharing ratios change. Every change potentially triggers a tax charge, and the changes are often large.

HMRC didn’t mention this point in Spotlight 63, but we understand they are currently investigating it.

Capital gains tax

Here’s LT4L/Venables:

HMRC appear to accept that there was no capital gains tax payable when the properties were transferred to the LLP.

Robert has advised us that in general that must be correct, although he adds that there may be a small number of our clients who may require more specific contact relating to their specific circumstances.

Once more, a failure to engage with the actual problem: LT4L promised that the structure would “rebase” assets so that, when you sell a property, you’re only taxed on gains since it went into the LLP:

They explained this through gobbledegook:

There is no rebasing when property is moved into an LLP.

One of Bailey’s many errors was to believe LLPs were treated as corporates for capital gains tax purposes:¹⁸

This is an amazing mistake for any accountant to make (but one Bailey makes consistently). We’re aware of former LT4L clients with high six figure liabilities as a result of LT4L’s incompetence.

It’s fairly obvious why LT4L don’t want Venables discussing these issues.

Disclosure of Tax Avoidance Schemes

The “disclosure of tax avoidance scheme” (DOTAS) rules require promoters of tax avoidance schemes to notify HMRC. HMRC then provides a scheme reference number which the promoter has to give its clients to put on their tax return. This is the kiss of death if you’re trying to market a scheme, so promoters generally find bogus legal rationales for not disclosing.

The LT4L scheme plainly was disclosable, because its “main benefit” was obtaining a tax advantage, and the scheme was mass-marketed and highly standardised.

LT4L didn’t disclose, because they thought their LLP scheme (created wholly for tax reasons) was comparable to the kind of LLP commonly used by accounting and law firms (it isn’t) and “a business structure is not a tax avoidance scheme” (which just ignores the way the rules work).

Spotlight 63 is very clear that HMRC believe DOTAS applies. The LT4L/Venables advice doesn’t mention DOTAS. We would speculate that’s either because LT4L didn’t ask the question, or because they asked the question but didn’t like the answer.

Where does this leave LT4L’s clients?

In a terrible position. They are being advised to do nothing…

“HMRC have suggested that you should amend your self-assessment return for 2021/22.

Robert does not see how it could be to your advantage to do so. He can see that it would very probably be to your disadvantage and to the advantage of HMRC

…

HMRC have suggested that you should make a “declaration” to them and have threatened an enquiry into your self-assessment return for 2021/22 if you do not do so by January 31st 2024. They have not specified what the “declaration” should concern.

Robert does not see how it could be to your advantage to make such a declaration, even if you knew what it was you were supposed to declare. He sees the threat of HMRC making an enquiry into your self-assessment return if you do not do so by January 31st 2024 as a hollow
one.”

… but being given no explanation that would let them form a reasonable belief this is a correct course of action.

The likely outcome will be penalties. Robert Venables KC has this to say about penalties:

HMRC have suggested that unspecified penalties might be due from you.

Robert does not see how that can presently be the case.

Again, there is zero content here. Penalties are very likely due for taking all the unsupportable positions we refer to above, and then for failing to correct returns when HMRC has given taxpayers an opportunity to do so.

Why won’t LT4L publish the full opinion?

Often people don’t publish opinions they receive from KCs because that would cause the opinion to lose legal privilege. HMRC could then obtain a copy of the opinion, the instructions and other supporting documentation.

But this ship has likely sailed. By publishing the summary, LT4L probably waived privilege in the opinion itself.¹⁹

Another possibility is that the full opinion is embarrassing, particularly if LT4L actually put Chris Bailey’s amazingly wrong technical claims to Venables.

Another is that the opinion would reveal how Venables is being instructed to not actually advise on the key questions.

A taxpayer cannot reasonably proceed on the basis of an empty summary of advice which reveals none of the reasoning, and may indeed be on an entirely incorrect basis. LT4L clients should be demanding the full instructions and opinion. LT4L will probably refuse.

However LT4L will likely be unable to refuse a formal request for the Venables papers from HMRC. Similarly we expect they will be unable to resist disclosing the documents in the (very likely) event they are sued for ngeligence by former clients.

So was it fraud?

We don’t know.

This may have been a case of people acting in good faith, but just getting the tax position extremely wrong. That is quite hard to credit given the number of apparently qualified people working for LT4L, the number of unrelated errors they have made, the number of people who pointed out their errors over the years, and the length of time they sold the structure. Nevertheless, it remains a possibility.

In our judgment the more likely scenario is “wilful blindness” – that Chris Bailey, the qualified chartered accountant who appears to be behind the scheme, had no real expertise in tax, somehow bluffed his colleagues into thinking he did, and pressed on despite all the criticisms made by other advisers. If that’s what happened, then it could amount to fraud against HMRC and LT4L’s clients – that depends on whether a jury would consider Bailey’s actions to be “dishonest”. We discussed how courts approach this question here. In this scenario, those around Bailey were not dishonest, just reckless/negligent.

The people who run LT4L are in greater legal jeopardy now. They have a detailed analysis of their structure which demonstrates it to be hopeless, and they know HMRC agrees. But, instead of admitting error and acting in the best interest of their clients, they are deep in denial, if not cover-up, and continuing to collect £450 per month in fees from around 450 LLPs – i.e. c£2.5m/year. This behaviour may amount to dishonesty even if the earlier behaviour did not.

There is an additional question around LT4L’s repeated claims that they had special insurance which provided complete protection for their clients, with coverage of “£2m per case”:

These claims are almost certainly false,²⁰ and if LT4L knew the claims were false then that could amount to fraud by false representation. We asked LT4L to explain these statements; they declined.

What should LT4L clients do?

LT4L clients should urgently obtain independent tax advice to regularise their tax affairs, plus independent legal advice to preserve their ability to sue LT4L if (as is likely) they have suffered loss.

We can’t recommend individual advisers due to the risk of a conflict of interest, but there are now a number of reputable legal and tax advisers who are familiar with the LT4L scheme and able to act.

However we fear that most LT4L clients will have no way of knowing they are being badly misled.

Who can protect LT4L’s clients?

Right now there is nobody protecting LT4L’s clients from what we believe to be incompetent advice that will cause them significant financial harm.

Who could act?

• Chris Bailey is regulated by the ICAEW. We reported him to their professional conduct department, and urged swift action to protect LT4L’s clients. It looks like no swift action is being taken. The ICAEW is in danger of completely undermining the concept of self-regulation.
• HMRC are enabling LT4L’s behaviour by continuing to treat them as a normal adviser, and allowing or even encouraging them to coordinate their clients’ responses. HMRC should write directly to the clients, warning them that LT4L promoted an undisclosed tax avoidance scheme, and suggesting the clients obtain independent advice.
• HMRC should commence a criminal investigation into Chris Bailey and Less Tax for Landlords.

The question is whether the ICAEW and/or HMRC will step up.

Tax Policy Associates is committed to accuracy and we will promptly correct any errors of fact or law in this article. We will not, however, retract our legal opinions in the face of abuse, legal threats and vague non-specific denials.

---

Thanks to M and L for a helpful discussion on fraud and dishonesty, P for a detailed analysis of the tax evasion caselaw, and K for advice on privilege and collateral waiver. Thanks to S for his insightful review of our original draft. And thanks again to the many people who helped with our original investigation into Less Tax for Landlords.

Less Tax for Landlords is a high profile firm. They sponsor the National Landlord Investment Show and are promoted by the National Residential Landlords Association. They won the Property Reporter award for “Best Accounting & Tax Services 2023“. They’ve sold hundreds of landlords a “hybrid partnership” structure which is supposed to avoid income tax, capital gains tax, stamp duty land tax and inheritance tax. It’s flown under HMRC’s radar, and so avoided about £50m in tax to date. But in reality the scheme doesn’t work, and triggers significant additional taxes. HMRC have just confirmed this. Worse, the scheme will in many cases default the landlord’s mortgage.

Our recent report on Property118 described their trust/company scheme as the worst avoidance scheme we’ve seen. The aim was to enable landlords to move their business to a company, and claim relief on their mortgage interest, without any of the commercial or tax downsides that would normally follow from that. The scheme fails, and likely triggers significant additional tax but, more seriously, in our view (and that of UK Finance) it likely defaults the client’s mortgage.

A plausible explanation was that Property118 is a firm of salespeople with no legal or tax expertise. They are reliant for legal and tax advice on “Cotswold Barristers” – a genuine barristers’ chambers, but a rather peculiar one, with no specialist tax barristers. So it’s not surprising that their attempts to engineer a clever tax avoidance scheme ran awry.

Less Tax for Landlords is different. On the face of it, they have a large, qualified and experienced team. However their explanations for their structure are nonsensical, and their structures will leave taxpayers in a complex mess – a potentially even worse outcome than Property118’s.

Here’s the view of Ray McCann, a retired senior HMRC inspector and past President of the Chartered Institute of Taxation:

“The Less Tax for Landlords structure is nonsense. It lures clients into what they may think are clever interpretations of the law – but actually LT4L are just plain wrong”

And here’s HMRC’s view:

Who are Less Tax for Landlords?

They’re part of the One Consultancy Group, which includes an accounting firm (OCG Accountants), a mortgage broker (OCG Mortgages), an FCA regulated financial services firm (Phare Financial Services) and an SRA regulated law firm (OCG Legal).¹ They say their tax services are provided by qualified professionals – solicitors, ICAEW and ACCA accountants, and STEP (trust and estate) practitioners:

Less Tax for Landlords (LT4L) have an established industry profile. They sponsored the National Landlord Investment Show, were promoted by the National Residential Landlords Association, and appeared on panels at the Property Investment Show:

They won the Property Reporter award for “Best Accounting & Tax Services 2023”:

And here’s the typical LT4L scheme.² This is from a document sent to a potential client this year:³

This is a very complicated-looking structure for a medium-sized property rental business.

It is supposed to work like this:

• The landlords (say a married couple) establish a limited liability partnership (LLP).
• The landlords become members of the LLP.
• The landlords declare a trust over their properties in favour of the LLP.
• The landlords establish a company which becomes a member of the LLP (or, in some cases, the company becomes a member earlier, at the same time as the landlords).
• The landlords hold A shares in the company, giving them voting rights. Their children acquire B shares in the company, which carry rights to all the increases in value in the company (“growth shares”).⁴
• The LLP diverts most of its profit to the company.

The claimed benefits are much more impressive than Property118’s:

• No need to tell the mortgage lender.
• After two years, the structure is entirely exempt from inheritance tax thanks to business property relief (BPR).
• The diversion of LLP profits to the company means rental income is taxed at the corporate rate of 19-25%.⁵
• The trust means the landlords’ obligation to make mortgage payments “shifts to the LLP”, meaning the company as LLP member obtains full tax relief for mortgage interest. The “section 24” restriction on landlords claiming tax relief is avoided.
• No CGT or SDLT on establishment, without needing to qualify for any special reliefs.
• The properties are “rebased” for capital gains tax. In other words, when they’re sold, only the capital gain after incorporation of the LLP is taxed. Pre-incorporation gains disappear.
• Instead of taking profits out of the LLP, you can take capital out instead, and you won’t be taxed.
• There’s no need to disclose the structure to HMRC.
• If the structure triggers unexpected tax, LT4L’s clients are protected by an unusual insurance arrangement:

In reality, every aspect of the structure fails:

• Declaring a trust over the rental properties without the mortgage lender’s consent (or even telling them) will in most cases default the mortgage. The structure was described to us by an experienced broker as “almost unmortgageable”.
• Rental property businesses don’t qualify for inheritance tax business property relief. The LLP structure doesn’t change that.
• The mortgage obligation doesn’t “shift to the LLP”. It remains with the landlords – who now lose their 20% credit.
• The “mixed partnership” rules mean you can’t get a tax benefit by allocating profits to a corporate partner in an LLP.
• The allocation of profits to the corporate partner means there will be up-front capital gains tax. There’s no CGT rebasing.
• SDLT will be due at the point that income profits are allocated to the corporate member. LT4L’s unusual structuring potentially results in a higher SDLT liability than would result from a simple incorporation.
• The structure can incur additional SDLT every time the profit allocation changes. LT4L’s clients could have unknowingly racked up years of SDLT liabilities.
• The structure is disclosable under DOTAS, the rules requiring tax avoidance schemes to be disclosed to HMRC.
• Members are taxed on profits as they are made; when and how they are taken out is irrelevant. This is a basic principle of LLP taxation.
• There is no special “written note” from LT4L’s insurers. They just have the usual professional indemnity insurance. To get any benefit from that you have to: lose a dispute with HMRC, sue LT4L (with the insurers arguing LT4L’s case, not yours), and win. This is not easy, even if (as we believe) LT4L’s advice is plain wrong.

Advisers and potential clients have been challenging LT4L on these issues for years, and – when they have received an answer – it suggests LT4L are making a series of serious legal and tax mistakes. The response we received from LT4L also suggested LT4L are advising in areas where they fundamentally misunderstand the law.

It’s therefore our opinion that the structure has no realistic prospect of success. It will leave LT4L’s clients in a very difficult position with their mortgage lender and HMRC.

Given LT4L’s high profile, we set out all these issues in detail below. We will publish any further response we receive from LT4L.

What is the scale of this?

Here’s Less Tax for Landlord’s illustration of a typical tax saving:

That accords with the figures we’ve seen in advice they’ve provided to clients – typical tax savings or (to be more accurate) tax avoided of £40-50k/year.

Less Tax for Landlords have registered 440 LLPs since 2016:⁶

That suggests that, over the life of these LLPs, about £50m of income tax has been avoided.⁷⁸

The mortgage default

Our report on Property118 set out in detail why declaring a trust over rental properties, without the consent of the mortgage lender (or even telling them) in our view likely defaults the landlord’s mortgage.

More importantly than our view is the view of UK Finance, the representative body for mortgage lenders:

“If someone wishes to transfer ownership of a buy to let property they should contact their lender to discuss whether this is permitted under the terms of any mortgage on the property. Transferring ownership of a property into a trust without informing your lender and seeking their consent would most likely be a breach of a mortgage’s terms and conditions.”

We believe UK Finance are right on this. But even if we didn’t agree, we’d suggest that it’s not a good idea to enter into a structure which your lender believes most likely breaches the terms of your mortgage.

We put this point to LT4L. They said:

“Whilst having a similar impact [to Property118], we do not use a declaration of trust, just a simple letter of trust. The relationship between the individual member and the LLP is registered with HMRC via the Trust Registration Service.”

A “letter of trust” is a “declaration of trust”. Registration with HMRC is irrelevant to the legal analysis. This answer suggests LT4L do not understand the nature of a trust. 

They go on:

“The letter of trust operates to ensure that the contractual rights of the lender are preserved and not prejudiced such that the trust operates in a manner that the rights of the beneficiaries are subordinate to those of the lender.”

This is irrelevant. The question is whether the trust breaches a requirement in the mortgage T&Cs to obtain lender consent. In most cases it will.

“In our experience full disclosure to lenders is always the best policy and our mortgage team constantly discuss with lenders the ever-changing landscape in the mortgage market. Through these discussions we are well aware of which lenders are happy to accept the structure and those that don’t.

We would never advise a client not to tell their mortgage company. If any client is unsure whether the use of this structure may affect their mortgage conditions they can, and do, ask us, and we will provide professional advice on that matter.”

Property118 and LT4L have a slightly different emphasis here. Property118 announce with confidence (but wrongly) that there is no need to tell the lender, or obtain its consent. LT4L seem more cautious around the point – they say above that they “never advise a client not to tell their mortgage company”, but the lender wasn’t informed in any of the specific LT4L LLPs we’ve investigated. LT4L’s founder has also made some very bold (and incorrect) statements on the subject.

This shouldn’t be a surprise, because the entire purpose of the trust structure is to circumvent the need to obtain lender consent. It serves no other purpose. The transaction would be more straightforward if the landlord just sold the properties to the LLP.

LT4L say their in-house mortgage broker can obtain mortgages for the LLP structure, but they will be specialised products. The unusual combination of a trust and an LLP was described to us by an experienced broker as “almost unmortgageable”.

Inheritance tax

Less Tax for Landlords say that a standard company holding rental property is subject to inheritance tax, but their “mixed partnership” structure is not.

The claims

Here’s LT4L’s founder, Tony Gimple (now retired):

“[B]ecause the HMRC recognizes that there is a trading relationship between you all, and that you’ve got a written business plan and that you’re managing it and that your sole purpose is not to avoid tax but to maximize your wealth to tax efficiently as possible, the whole thing becomes inheritance tax free.”

A trading relationship between the participants, a business plan, not having a tax avoidance purpose – all these things are irrelevant to whether inheritance tax applies.

This is from a June 2021 webinar:⁹

“The LLP structure that we set up is not investing in property. It does not own the property. The property is owned by the individuals. The LLP has taken advantage of that ownership and it is available… after two years, that LLP turns into a trading business according to HMRC, not according to us, according to HMRC. And at that point, after two years, the equity of those properties inside that LLP are then outside of the estate for inheritance tax after two years. “

The LLP does have beneficial ownership of the property. The LLP does not “turn into a trading business”. HMRC has certainly not said that.

From that same webinar:

“It is outside of your estate for inheritance tax, as long as you tick various boxes”

There are no “boxes” you can tick, literally or figuratively. As we discuss further below, whether an inheritance tax exemption applies is a question of substance.

And:

Mixed partnership income is not “treated as trading income” (and it would be irrelevant if it was).¹⁰

And on their website, right now:

The reality

HMRC say this doesn’t work.

HMRC are, of course, right.

There is an exemption from inheritance tax for certain business property – business property relief (BPR).

Under section 105(3) of the Inheritance Tax Act 1984, a business won’t benefit from BPR if it consists wholly or mainly of one or more of the following: dealing in securities, stocks or shares, land or buildings, or making or holding investments. When an individual holds real estate through an LLP, they are treated as if they held the real estate directly.¹¹

Almost all property rental businesses consist of holding “investments” (the real estate), and so fail to qualify for BPR. Taxpayers have failed to qualify for BPR even for an actively managed business of letting holiday cottages; in the words of the recent Grace Joyce Graham judgment, it is only “the exceptional letting business which falls on the non-investment side of the line”. In the Graham case, the deceased “lavished” personal care on guests, including making them home-made food, providing them with fresh crab and fish, arranging linen and towels, making cream teas, and organising weddings and other events. The Tribunal thought this was an “exceptional” case but that, even then, it only “just” qualified for BPR.

It’s a question of substance, not legal structuring. So, unless the original rental business was itself “exceptional”, the LLP structure won’t benefit from BPR. There is no inheritance tax benefit to the structure.

This is all well known to tax advisers in this area.

Here’s a summary of the position from the Chartered Institute of Taxation:

Over the years, numerous advisers have challenged LT4L on this point – we’ve seen emails and transcripts of calls where LT4L simply refuse to answer questions on the subject (and there’s a public example of this here).

We have spoken to numerous inheritance tax specialists – KCs, academics, accountants and solicitors – and they are mystified by LT4L’s claims. One eminent KC described LT4L’s approach as “mad and hopeless”.

Less Tax for Landlords’ response

We do not work with all landlords, at least not in relation to a Mixed Partnership structure, and for those we do work with, we look to help them commercialise their operation and introduce more trading activity into their business model.

The BPR test as you know is about being ‘wholly or mainly’ involved in trading activity.

You can’t “introduce more trading activity” into a rental property business and qualify for business property relief. The scale and sophistication of the business is irrelevant. Only the “exceptional” property rental business will qualify for BPR ¹²).

Regarding [their claim that “mixed partnership income is trading income”], we assume that your quote was taken from a slide last used in 2019? It is not a correct statement hence it hasn’t been used for a number of years.

What is true to say though is that we have had correspondence with HMRC where they have agreed that the partnership income received from the LLP is treated as trading income and as such, the clients pay the appropriate Class 2 and Class 4 National Insurance contributions.

Despite the denial in that first paragraph, it seems from the second (and the material referenced above) that LT4L do believe their structure somehow creates trading income (it doesn’t), and that trading income means BPR would apply (it wouldn’t).

It is possible that HMRC might have accepted a position of “trading” for income tax purposes – that would be technically wrong, but HMRC would have no reason to scrutinise the position too heavily. It does not follow that HMRC has accepted BPR status and in any case, the classification of the profit share in the hands of the partner of the LLP for the purposes of his or her national insurance contributions does not automatically extend to other taxes, and has no relevance for the purposes of determining whether BPR will apply for the purposes of inheritance tax.  As a result, any clearance received on the income tax position cannot be relied upon for BPR purposes. All the advisers we spoke to believed HMRC would resist such a claim.

LT4L have claimed that they have had clients who died and whose estates successfully claimed BPR. Unless those clients were actually managing a hotel (or similar BPR-qualified business), we do not see how that was possible. Either HMRC made a serious mistake or – more likely – LT4L failed to disclose the reality of the business to HMRC. In such a case, HMRC would have at least six years to investigate, and potentially twenty years.

Mixed partnership rules

A key element in the LT4L structure is that the rental properties are sold to the LLP by the landlord, who becomes a member of the LLP. The landlord also sets up a company, which becomes a member of the LLP. Then, despite the fact the landlord contributed all the value to the LLP, profits are disproportionately allocated to the company. Which is the LT4L “special sauce” – the company supposedly gets to fully deduct the mortgage interest from its profits.

The standard LT4L LLP agreement is explicit that profit can be allocated between the members however they like:

And:

Most people would describe this as tax avoidance – profits are being artificially allocated to one member of an LLP solely for tax reasons. And rules were introduced in 2014 to counter this – the “mixed partnership rules”.

These rules (broadly speaking) stop partnerships and LLPs allocating income to different partners in a way that obtains a tax advantage. The effect of the rules is (essentially) to undo any allocation to an LLP member that exceeds a commercial return on the capital or services the member provided. That is a big problem for the LT4L structure, because the corporate LLP member is receiving a large profit share, creating a tax advantage, when it provided no capital and provided no services.

LT4L clearly sense there’s an issue here, because they created a video to specifically address the point:

” In all our cases we ensure that all our LLPs have proper business planning and they have reasons for doing what they do. In simple terms, if these are followed then the mixed partnership rules which were built to stop tax avoidance will not apply to the partnerships because they are used for business purposes. HMRC quite rightly are attempting to stop tax avoidance. “

That’s their consistent line:

“As I said all the way through my presentation, there are rules that HMRC have put in place to stop people using the structure for tax avoidance reasons. So everything that you do has got to be business generated and has got to be in line with the business objectives where the business is going. If that’s the case, then what’s being referred to here are what’s called the mixed partnership rules that came out in 2014 and those rules relate to people where the main reason for dealing with the structure is tax avoidance. Clearly, it’s not the case with our clients because of because of the business structures that we put in place and therefore, we are outside of those rules.”

The same approach is set out in a “technical FAQ” that LT4L circulated in 2022:

And in this recent presentation:

So, in short, the LT4L answer is that there’s no need to worry about the 2014 legislation, unless there is a “tax motivation”. This is hopelessly wrong as a matter of tax law.¹³ It’s also a bit silly, when it’s clear their profit allocation to the corporate member of the LLP is entirely tax motivated.

The rules don’t contain a motive or purpose test.¹⁴

In the LT4L structure, the corporate member provides no capital and no services – it follows that all the profits allocated to it will be reversed by the mixed-partnership rules. The overall commerciality (or not) of the structure isn’t relevant.

There has been one decided case on the mixed partnership rules, Walewksi. LT4L say they’ve read the judgment “very carefully“, and have a video specifically on the case:

“the court found that the structure was set up purely for tax evasion or tax avoidance”

This is false, and suggests LT4L didn’t in fact read the case. The taxpayer’s own advisers said the application of the rules wasn’t dependent on a tax avoidance purpose:¹⁵

LT4L appear to believe that it was the lack of documentation which sunk Mr Walewski’s structure:

This is not correct – the problem was that the allocation of profit to the company didn’t reflect capital or services it had provided. LT4L’s structure has exactly the same problem. Documentation won’t solve this, and you can’t manufacture “real commerciality”.¹⁶

We have spoken to numerous advisers who have made these points to LT4L and received no response. There is a typical exchange here.

None of the positions above are controversial or difficult; they reflect the general view of tax advisers on the mixed partnership rules. We are aware of one instance, soon after the rules came into force in 2014, where an experienced adviser sought a clearance from HMRC on facts somewhat similar to LT4L’s, in the hope that HMRC would not apply the rules literally. HMRC’s response was that they would, and the mixed partnership rules applied.

And HMRC now has a public statement saying the same thing:

LT4L’s response

We asked LT4L why their material referred to the purpose or justification of a structure, when that wasn’t relevant to the mixed partnership rules. We mentioned one example where they had said the rules only apply “where you are doing a hybrid structure purely for tax motivated reasons”. This was their reply:

“This should not be the words being used and we would look to review any literature to ensure that it is stated correctly.

GAAR [the UK’s general anti-abuse rule] states that tax arrangements are abusive if they are arrangements, the entering into, or carrying out of which, cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions taking into account all of the circumstances.

In HMRC’s policy paper published 28/3/2014 it clearly states that the legislation is being introduced to remove the tax advantages gained by tax motivated profit allocations.

There are always commercial reasons motivating the incorporation into this structure, and the structure provides the Client with options to consider including, but not limited to, commercial opportunities, flexibility, and business continuity.”

This is all rather alarming:

• LT4L use the same formulation in dozens of documents that we’ve seen, all of their videos, and a document titled “technical FAQ”. This isn’t a one-off mistake. The most charitable view is that LT4L have completely misunderstood the rules.
• The reference to the GAAR is irrelevant, and it’s hard to understand why a tax professional would mention the GAAR in this context.¹⁷
• In this response and in the FAQ, LT4L refer to a March 2014 policy paper that discussed the mixed partnership rules, then in draft. The legislation was enacted on 17 July 2014, and the final version of the rules was not limited to “tax motivated profit allocations”. Why are LT4L advising clients on the basis of an out-of-date policy paper, and not by reference to the actual legislation?
• The fact there are “commercial reasons” as well as a tax motive doesn’t escape most anti-avoidance rules. But, for this particular rule, the existence (or not) of a tax motive is irrelevant. The question is whether the return to the corporate member is commercially justified given the capital and services it has provided.

Transfer of income stream rules

We would add in passing that the transfer of income stream rules may also apply. LT4L have said the rules won’t apply to a commercial structure, but only to “purely tax-motivated transactions”. We don’t believe that is an accurate way to describe “main purpose” tests, and in any case not all of the rules are subject to a main purpose test.¹⁸ The rules are complicated and, given the LT4L structure has already failed so comprehensively, we won’t go into them in detail, but HMRC agree there is a problem:

Tax treatment of the mortgage payments

You can declare a trust over assets. You can’t declare a trust over obligations. This creates a problem when promoters try to circumvent section 24 by using a trust to “move” interest payments from a landlord to a company. We discussed these issues in detail for the Property118 structure.

In the LT4L structure, the landlord remains the borrower under the mortgage. Property118 argued (incorrectly) the landlord was the company’s agent.

We have evidence of LT4L saying to another adviser that, under the Letter of Trust, the payment obligation “shifts to the LLP”, hence the members of the LLP can claim a deduction “through” the LLP. This is not possible as a legal matter. Furthermore, there is nothing in LT4L’s standard trust document even purporting to achieve the kind of agency or indemnity result that Property118 claim to achieve:¹⁹

Accordingly, at present we see no basis for the LLP members to claim a deduction (even an arguable one). The mortgage obligation remains with the landlords – but as they no longer hold a beneficial interest in property, they lose their 20% credit.

We would also query several elements of the letter:

• Why does it say the landlord received the property “free from any and all obligations” when it’s mortgaged?
• Why does it say the landlord will transfer legal title to the LLP when required, when the mortgage prevents him doing that?
• Why does it say the landlord won’t present himself to any third party as the beneficial owner, when he will present himself to the mortgage lender, insurance company, tenants, letting agent etc as the beneficial owner?

All of this adds to the sense that this is an uncommercial and artificial structure.

Capital gains tax

The claim from LT4L is that, when the landlord sells the rental properties into the LLP, he’s the only member of the LLP and so there’s no change in ownership and no CGT. Better still, your rental properties are “rebased” so, when the LLP later sells the properties, you’re only taxed on the gain after the LLP is incorporated:

“Capital gains tax is mitigated or at least seriously reduced on entry to the LLP. Your market value is re-based. Technically it’s done every year but we just focus on the market value on the date of incorporation. So it’s the date when all the legal work takes place and your LLP is up and running and the LLP is now taking responsibility for the accountancy side of the of the business. So when you make that move into the LLP there’s no capital gains or stamp duty to pay at that point. There is no change of title, legal title, so the properties state in your own name.”

These two claims are contradictory. If there’s no change in beneficial ownership, and the sale to the LLP is a capital gains tax “nothing”, then how can there be a re-basing?²⁰.

Here’s Tony Gimple, again:

“Here’s the kicker: mixed partnership Income is treated as trading income. It’s why HMRC say if at some point you ever want to incorporate, go into a partnership first. Because it’s trading income and only trading businesses get Section 162 incorporation relief.”

These are non-sequiturs. There is nothing special about mixed partnership income which treats it as trading income. You qualify for incorporation relief if you are a “business” – there is no need to be trading. There is no transfer by the LLP, and so no application of incorporation relief. We’re not aware of anyone from HMRC saying anything like “if you ever want to incorporate, go into a partnership first”.

And here is the same claim on their website:

None of this is true. Here’s what actually happens:

• When they allocate partnership income to the corporate partner, that may be a change in the partners’ fractional interests in the LLP’s assets, and that may be a capital gains tax disposal event – the landlord is disposing of part of his interest in the rental properties, and the company is acquiring it. That could trigger immediate CGT for the landlord.²¹
• There is no rebasing. The individual landlord remains the owner of the properties (save to the extent there’s been an allocation to the corporate partner). When rental properties are sold, it’s just a straightforward CGT disposal by the individual landlord, so she is taxed on all the gain since her original purchase (and the company is taxed on its (probably much smaller) gain since it acquired its fractional interest).

HMRC agree:

This is a much worse result than if the landlord simply sold her business to the company in the usual way, because then (subject to qualifying as a “business”) incorporation relief could apply – there would be no up-front CGT and the assets would be rebased.

Stamp duty land tax

LT4L say there is no SDLT on the establishment of their structure, because there is no change in ownership – the landlords still own the property “through” the LLP.

That is, however, not how the rules work.

The LLP’s beneficial interest in the property means it is a “property investment partnership” for SDLT purposes. That results in a charge to SDLT on a change in income profit sharing entitlement under Finance Act 2003 Schedule 15 paragraph 14²² – even if there is no change in the entitlement to capital:

One might expect the result to be the SDLT the structure is avoiding – i.e. SDLT on the share of profit to which the company is now entitled. However in fact the charge could be much higher than this, especially for high value portfolios holding low value properties, because of the loss of multiple dwellings relief.

This is a surprising result, so it’s helpful to step through an example.

A UK resident married couple have a portfolio of 30 let residential properties worth £6m. They wish to put the properties into an LLP with an 80% share of the income profit going to their limited company.

If they did this directly, the LLP would pay SDLT on chargeable consideration of £4.8m (80% of £6m) which would be:

• £229,500 if they took the default of applying non-residential rates,²³
• but potentially reduced to £144,000 by claiming multiple dwellings relief.²⁴

LT4L think their structure avoids the £144,000. Their strategy involves the following steps:

• The properties are first introduced by the couple to the LLP.
• After the property is introduced, the company is added as a member of the LLP.
• The members subsequently agree that the company is to have an income profits share of 80%.

Under the SDLT provisions for property investment partnerships, there is chargeable consideration of £4.8m²⁵ at the point the income profit share is adjusted. HMRC take the view that MDR is not available for this form of charge, so the SDLT would on the face of it be charged at £229,500 (using non-residential rates). This is significant increase on the £144,000 charge if a more direct approach had been taken.

But it could be much worse. HMRC might go further, and argue that residential rates apply (without MDR still being available). On chargeable consideration of £4.8m this would mean SDLT of £487,250 – more than double the expected charge.²⁶

And even worse: LT4L’s LLP agreement and promotional videos suggest you can flexibly change profit-sharing ratios. Each time you do that, there could be a new SDLT charge under paragraph 14.²⁷ LT4L’s clients could have unknowingly racked up years of SDLT liabilities.

This is a terrible result²⁸ for the landlords – and HMRC could challenge their position at any time in the next 20 years²⁹, and then collect the tax, interest, and a tax-geared penalty.

It would be better for the landlords if HMRC simply applied the SDLT anti-avoidance rule in section 75A Finance Act 2003 – that would just undo the SDLT benefit of LT4L’s two-stage approach, and charge the £144,000 that the structure tries to avoid. However, if we are correct that paragraph 14 applies as above, then section 75A cannot apply.

HMRC’s Spotlight doesn’t mention the SDLT issues yet, but we expect HMRC will have no difficulty identifying the points.

Failure to disclose to HMRC

Most tax avoidance schemes are required to be disclosed to HMRC under the “DOTAS” rules. The idea is that a promoter who comes up with a scheme has to disclose it to HMRC. HMRC will then give them a “scheme reference number”, which they have to give to clients, and those clients have to put on their tax return. It’s the tax equivalent of putting a “kick me” sign on your back, because the expected HMRC response is to challenge the scheme and pursue the taxpayers for the tax.

For this reason, promoters of tax avoidance schemes typically don’t disclose, even though they should. This is often on the basis of tenuous legal and factual arguments, to which the courts have given short shrift³⁰.

LT4L provided us with both a tenuous factual argument and a tenuous legal one.

Their tenuous factual argument was to deny that one of the main benefits of their structure is the tax advantage. This is surprising given that the only reason to use an LLP rather than a company is the supposed tax benefits. It is also surprising given the name of their company. They responded that their name was merely a marketing term, and the “Less Tax for Landlords” company doesn’t undertake work itself. This isn’t terribly persuasive.

Their tenuous legal argument was that LT4L can’t be a “promoter” within DOTAS, because they “are not in any extent responsible for the design of a ‘scheme’”. This is, however, not what the legislation says. The legal test isn’t whether there is a “scheme” but whether there’s an “arrangement”, and any series of transactions is an arrangement. So the LT4L structures are an “arrangement”, and LT4L are responsible for the design.

Once we’ve established there’s a tax main benefit, and that LT4L are a promoter, the only question is whether one of the DOTAS “hallmarks” is present. There are several candidates:

• The most likely to apply is the financial product hallmark given that the structure involves contrived and abnormal arrangements regarding a loan.³¹
• The confidentiality hallmark. As far as we are aware, LT4L have never explained the technical analysis underpinning their structure, and on several occasions they have explicitly declined to do so because it is their “IP”.
• The “premium fee” hallmark may also apply given the high fees LT4L charge (£18,000 or more).³²
• The standardised tax product hallmark.³³

In addition: if (as seems likely) one of the main benefits of the structure is gaining an SDLT advantage compared to a vanilla incorporation, then the SDLT disclosure regime may³⁴ apply (for which there are no hallmarks).

HMRC’s Spotlight also suggests DOTAS applies:

If the structure should have been disclosed under DOTAS, then LT4L’s failure to do so means they may be liable for penalties of up to £1m.

LT4L fail to understand the basic principles of partnership taxation

An LLP is essentially taxed as a partnership. The essence of partnership taxation is that members are taxed on their share of the partnership’s profits. Whether it’s actually paid out to them is irrelevant, as is the way it’s paid out. Members are taxed when the LLP makes the profit.

We’ve received reports from advisers who have recently heard LT4L say the opposite: that members are only taxed on profits distributed to them. LT4L then engineer a structure where profits aren’t returned (but capital returned instead) and claim it saves tax. This is “not even wrong“.

We would find these reports hard to believe, but Tony Gimple, LT4L’s founder, is on record saying that an LLP member is only taxed on distributed profits.

“Partnerships don’t pay tax on income only on distributed profits. But you have this million pounds sitting on the balance sheet. So instead of taking your 100,000 pounds a year in income, HMRC allows you to treat that as a return of capital. As a direct result of that, it is not subject to income tax. You may choose to take some income in order to pay tax.”

And that wasn’t a one-off:

“LLP’s don’t pay tax – it is the recipient of a distributed profit who pays the tax”

It is incredible that a firm is selling a structure based around an LLP, when its founder doesn’t understand the basics of partnership taxation.

We are concerned that LT4Ls may have taken “tax free” capital out of their LLPs, not realising that they were fully taxable on the underlying profits.

Insurance

Tony Gimple, LT4L’s founder, made this claim about their insurance³⁵:

This is not at all how insurance of this kind works. If a client follows LT4L’s advice and HMRC do not agree with the tax treatment, then LT4L’s insurers will not simply pay over the tax. The client would have to commence a court claim for negligence against LT4L. The insurers would then (assuming the claim is covered) likely require LT4L to defend the claim (and usually take over the conduct of the defence). Only if the client prevails, and is awarded damages (or achieves a settlement) would the insurers pay. That is, needless to say, not straightforward – professional negligence claims are usually difficult, and proving that the advice was unreasonable is only one part of the claimant’s burden.

We’ve seen a copy of LT4L’s professional indemnity insurance, and it is completely standard. There is no written note from the insurers saying they are happy to cover everything. Professional indemnity insurance gives you comfort that, if you do pursue and win a claim against your advisers, someone will be there to pay up. It does nothing more than that.

We asked LT4L about Tony Gimple’s statement. They said they recognised it could be construed as misleading, but the purpose “was to deal with ‘noise’ that was being generated on social media at that time”. It is unclear why dealing with “noise” justifies an untrue claim.

It is also not a one-off. Gimple said something similar before:

It is fair to note that Gimple retired from LT4L in 2020. But his claims continue to be repeated – here’s LTFL’s Head of Estate Planning:

“You also will be covered by our personal indemnity insurance. Our insurance is designed to return you to the place that you would have been had you never engaged with us. So it just ensures that although it won’t pay for example any tax that you would have paid if you didn’t do this. If any additional tax occurs because you engage with us it would cover that. It would cover any fines, any penalties and any further advice and also it would cover us to help you argue if HMRC ever had any issues and looked into this. It would help cover our costs and our fees for us to legally argue and do the work on your behalf.”

The same false claim – that the insurance would pay out if “any additional tax occurs because you engage” with LT4L.

And again:

“And then our insurance, we all have professional indemnity insurance, obviously. We’ve got two types, one PI cover, two million pounds a case. This is if we lose at court with HMRC. We also have what we call fees cover, and that covers any of the extra tax due, it covers any legal fees and it also covers any HMRC things like interest and penalties and everything like that.”

All these claims are misleading. The insurers do not simply pay out if a client “loses at court with HMRC”. They’re missing the vital detail that you’d have to sue LT4L for negligence, and win.

The claim that their insurance covers £2m per individual matter is also questionable. It will cover £2m per “claim”, and insurers will usually take the position that, if there are multiple liabilities to different clients, all resting on fundamentally the same point, then this is one “claim”. Often the policy wording expressly says this – here’s a standard form from LT4L’s own insurer:

It is certainly unlikely that if, say, all 440 LLPs sued LT4L for the same failings, the insurer would agree to cover £880m.

And LT4L’s insurer’s standard form also contains this exclusion:

Which would could deny the claim entirely if the insurer can show the claim “relates to a tax avoidance scheme”. The term isn’t defined, but given everything we’ve written above, there must be a significant risk the exclusion applies.

And finally there are a variety of reasons why the insurer could decline to pay up.

We asked LT4L why they were making misleading claims about the nature of their insurance. The response was that they are “communicating practically and focusing on outcomes”. We don’t believe that’s fair, because the actual outcome (client has to sue LT4L, this is difficult, and insurers run LT4L’s defence) is entirely missing from their presentations.

We also asked LT4L if their insurance had the claims and exclusion wording we’ve cited above. They didn’t respond.

We would add for completeness that LT4L say they have fee insurance which covers taking a dispute with HMRC to the First Tier Tribunal. But LT4L don’t add the obvious point: if the client loses at the FTT and wishes to appeal, the client would have to pay their own fees.

But LT4L say their clients have never been challenged by HMRC?

The claim here is typical:

We don’t know if this claim is true. But it’s hard to believe given the strength of the language in HMRC’s new Spotlight.

But it is possible for schemes to “fly under the radar” if the true nature of the scheme is never properly disclosed to HMRC, and we expect that is what’s happened here.³⁶

If that’s right, then HMRC would have at least six years to investigate an LT4L structure, and potentially twenty years (given the failure to disclose under DOTAS).

What if you’ve implemented this structure?

HMRC suggest contacting HMRC. They really have to say that, but we would instead suggest you first seek advice from an independent tax professional, in particular a tax lawyer or an accountant who is a member of a regulated tax body (e.g. ACCA, ATT, CIOT, ICAEW, ICAS or STEP). Given the potential for a mortgage default, we would also suggest you urgently seek advice from a solicitor experienced with trusts and mortgages/real estate finance (e.g. a member of STEP).

We would strongly advise against approaching Less Tax for Landlords given their apparent lack of understanding of the rules, and the obvious potential for a conflict of interest.

We’d also be interested in hearing from you, but unfortunately we cannot provide advice. In some cases we will be able to discuss the technical points discussed in this article with advisers.

Next steps

We hope HMRC will now investigate LT4L for what appears to be a serious failure to comply with DOTAS, and open enquiries and/or discovery assessments into its structures (which are easily to identify via Companies House).

We will be writing to the ICAEW, FCA, STEP and the SRA asking them to investigate those involved for promoting tax avoidance schemes that realistically have no prospect of success.

We will also be asking to the FCA raising a wider point about regulated firms’ involvement in aggressive and technically hopeless tax avoidance.

---

A large number of experienced tax advisers contributed to this report. Thanks to D and J for their inheritance tax analysis, B for the LLP and mixed partnership analysis, P and R for preparing the first draft, G, M and E for their detailed review of the structure, S and Sean Randall (Chair of the Stamp Taxes Practitioners Group and one of the leading advisers on SDLT) for their specialist SDLT input (and S also for exhaustively reviewing for errors), E for challenging potential weaknesses and errors, Pete Miller (who literally wrote the book on many of the taxes discussed in this report) and Ray McCann (former senior HMRC inspector and past President of the Chartered Institute of Taxation).

Thanks also to all the people who provided us with information and documentation on Less Tax Landlord’s structure. Very little in this report is new – advisers have been making these points for years.