Budget 2016 – Landlord reactions

Reply to the comment left by "Paul McCready" at "22/03/2016 - 22:53":

Not if you use a BICT. You are not "moving" the properties anywhere! Legal title, which is what the mortgage is attached to stays in your own name. Beneficial interest, which is what tax relates to is transferred

Hi nicolas

What about taking out option agreements from a limited company ? The contract relieves the borrower of the mortgage whilst still in there name and the limited company takes the rent and pays the mortgage.

We have a tax expert looking at this today if this is possible it will cost very little will keep people posted. We have options on several houses and it is logged through a solicitor on the land registry u can take an option out for 10 years with option to buy at the end of it. All rents and finance payments are then paid by the limited company and are subject to Corp tax ?

Hi Nicholas

Could you briefly explain why we have to get this deed of trust again before 31st ? My accountant has said there shouldn't be any SDLT involved am I missing something ?

Reply to the comment left by "NW Landlord" at "23/03/2016 - 17:46":

If you incorporate your business then there is SDLT payable unless you can claim the partnership rules exemption. The amount of SDLT is increasing by 3% from 1 April

Reply to the comment left by "Neil Patterson" at "16/03/2016 - 14:33":

Perhaps the Government want a piece of the action with the new help to buy scheme! unfair marketing!! I forsee and more homeless & rotting empty houses! Osborne living in his ivory tower!!

My concern is that this is a fairly blatant tax avoidance measure that could be declared invalid under the principle of substance over form.

This could result in a future repayment of back taxes and if it is deemed to be particularly egregious, come with a fine attached.

Are you confident that this is not the case and that there is sufficient precedence to ensure that this work?

This is something I picked up from HMRC's website from last year:

https://www.gov.uk/government/publications/spotlight-25-stamp-duty-land-tax-avoidance-no-human-rights-breach-in-stamp-duty-avoidance-challenge/spotlight-25-stamp-duty-land-tax-avoidance-no-human-rights-breach-in-stamp-duty-avoidance-challenge

"The government had made it perfectly clear that SDLT avoidance schemes…..would not be tolerated, and that retrospective legislation would be used to achieve that objective. The appellants can have been in no doubt about any of that, before they decided to take advantage of a scheme devised purely to circumvent the precise wording of section 45(1A) as it was before the legislative changes."

Not strictly related but is relevant in a substance over form way.

This is also potentially relevant:
https://www.gov.uk/government/publications/spotlight-27-interest-relief-avoidance-schemes/spotlight-27-interest-relief-avoidance-schemes

" The Targeted Anti-Avoidance Rule, which denies interest relief where avoidance is the sole or main purpose of the arrangements, may also apply."

The HMRC site offers the following guidance on tax avoidance schemes that would likely be declared invalid:
• It sounds too good to be true and cannot have been intended when Parliament made the relevant tax law. For example, some schemes promise to get rid of your tax liability for little or no real cost, and without you having to do much more than pay the promoter and sign some papers
• The tax benefits or returns are out of proportion to any real economic activity, expense or investment risk
• The scheme involves arrangements which seem very complex given what you want to do
• The scheme involves artificial or contrived arrangements
• The scheme involves money going around in a circle back to where it started
• The scheme promoter either provides any funding needed to make the scheme work or arranges for it to be made available by another party
• Offshore companies or trusts are involved for no sound commercial reason
• A tax haven or banking secrecy country is involved
• The scheme contains exit arrangements designed to side-step tax consequences
• There are secrecy or confidentiality agreements
• Upfront fees are payable or the arrangement is on a no win/no fee basis
• The scheme has been allocated a Scheme Reference Number (SRN) by HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) regime.

Given the uncertainty, the downside risks are quite severe - particularly if it involves fines on top if saved tax.

C24 is a nonsensical outrage but I doubt HMRC is going to be happy about this. The personal risks seem huge if it goes wrong.

Reply to the comment left by "H B" at "26/03/2016 - 09:07":

Hi HB
Where does the 'principle of substance over form' come from? That could be equally applicable in the legal arguments against C24 - linking to the idea that it doesn't matter what they now deem to be our (fictitious) profit; only the real, actual profit (substance) matters.

Hi Ros, substance over form is a principle of tax law that goes back at least 30 years and is sometimes called the Ramsay principle.

http://www.professionaladviser.com/international-investment/feature/1331344/the-ramsay-principle-inconclusive-defence

It is still being used to close down tax avoidance schemes. I just do not know whether this trust structure would be deemed covered by the principle. But if HMRC sends me a massive bill in the post as a result, I am not realistically going to take them to the Court of Appeal so would end up paying up. Some are braver than me, so perhaps I will follow in their steps if it is working without challenge after a year or so.

Somehow large companies can somehow ignore this through the use of Luxembourg, off-shore companies and clever internal transactions that transfer all profit to some low tax regime. But as you know, there is one rule for giant corporations (for whom tax is apparently optional) and the little guy, who gets eaten alive by HMRC.

The Ramsay case was in 2013, HMRC lost at second tier tribunal.
.

Reply to the comment left by "Mark Alexander" at "26/03/2016 - 10:34":

You may be thinking of a different case. This is
Ramsay v. IRC from 1981 which established the Ramsay Principle.

http://swarb.co.uk/w-t-ramsay-ltd-v-inland-revenue-commissioners-hl-12-mar-1981/