Could a new LLP tax judgment help landlords caught in HMRC’s Spotlight 63?

A new First-tier Tribunal decision has caught my attention because, although it has nothing directly to do with landlords or HMRC’s Spotlight 63, it considers something that sits very close to the heart of the Hybrid LLP debate:

Can an LLP and a connected limited company genuinely form part of one larger commercial undertaking, even though they are separate legal entities?

The Tribunal’s answer in Jody Scheckter v HMRC [2026] UKFTT 1280 (TC) was yes. That does not mean landlords caught in Hybrid LLP arrangements have suddenly won their argument with HMRC, and anybody suggesting that would be getting well ahead of the judgment. In fact, Mr Scheckter lost his appeal, and another part of the decision contains a fairly stern warning about how connected entities should deal with each other commercially.

Nevertheless, I think the judgment deserves careful consideration by landlords whose arrangements fall within HMRC’s Spotlight 63 and subsequent Spotlight 63a, including arrangements widely reported as having been marketed by Less Tax 4 Landlords and others.

Before going any further, I should make Property118’s position absolutely clear. Property118 has never recommended the mixed-member Hybrid LLP arrangements promoted by Less Tax 4 Landlords or similar providers. We were warning landlords about mixed partnership and Hybrid LLP models years before HMRC published Spotlight 63.

This article is therefore not an attempt to defend those arrangements. My interest is in what the new judgment might tell us about how they should now be analysed and, perhaps more importantly, how the position of landlords who entered them should ultimately be corrected.

What was Scheckter actually about?

The appellant was former Formula One world champion Jody Scheckter, who had built an organic farming and food business around Laverstoke Park.

The operation involved both Laverstoke Park Produce LLP and a connected limited company. Mr Scheckter held a 99% interest in the LLP and was the sole shareholder and director of the company. The LLP carried on farming and related activities, while the company undertook activities including animal processing and the sale of produce. The Tribunal referred collectively to their activities as the “Business”.

The dispute concerned sideways loss relief claimed against substantial losses of the LLP, rather than landlord taxation. One of the questions was whether the LLP’s farming trade formed part of a “larger trading undertaking” together with the company.

HMRC argued that a larger trading undertaking could not comprise more than one separate legal entity.

The Tribunal disagreed.

One undertaking can include more than one legal person

This is the part I find particularly interesting.

At paragraph 211 of the judgment, the Tribunal concluded that the statutory expression “larger trading undertaking” was capable of including more than one legal person in appropriate circumstances.

It then looked at how the LLP and company actually operated.

The Tribunal found that they were managed as a single enterprise, with integrated departments, a common objective, movement of assets between the entities, a single cost centre and ultimately a single retail hub. It therefore concluded that the LLP’s farming trade did form part of a larger trading undertaking comprising both entities.

There was also a genuine commercial reason for having two entities. The company had been established principally to isolate potentially significant liabilities arising from the abattoir from the LLP’s other assets. The Tribunal considered that, without that concern, the activities would probably have remained within the LLP.

That strikes me as commercially orthodox. Businesses regularly separate activities into different entities because risks, financing, regulation, succession arrangements or liability considerations make it sensible to do so.

Most importantly, the Tribunal did not conclude that the separate legal personalities prevented it from recognising the wider economic undertaking.

Why that may matter to Spotlight 63 landlords

Now compare that reasoning with the position of landlords who entered mixed-member Hybrid LLP arrangements.

HMRC describes arrangements under which individuals transferred beneficial interests in properties to an LLP containing themselves and a corporate member. Indemnities were then used to support an argument that the company had made a capital contribution corresponding with mortgage debt, with substantial rental profits subsequently allocated to the corporate member.

The fact that individuals, an LLP and a limited company appear within the same structure does not, following Scheckter, mean that they are incapable of forming part of a genuine wider commercial undertaking.

That could be helpful where HMRC or another adviser attempts to characterise the mere presence of several legal entities as evidence that the underlying property operation was artificial.

But that is about as far as I think the positive conclusion can safely be taken.

Scheckter does not say that transactions or profit allocations between those entities should automatically be respected for tax purposes.

In fact, the judgment says almost the opposite.

The warning hidden inside the good news

Although the Tribunal accepted that the LLP and company formed one wider commercial undertaking, it still asked whether the LLP itself was operating on a commercial basis.

That distinction proved fatal to Mr Scheckter on one of the issues.

The LLP owned the Laverstoke brand, which the Tribunal regarded as its most valuable asset. The company used that brand extensively in making sales, but the LLP did not charge the company for using it.

Mr Scheckter regarded the entire operation as one business and therefore paid relatively little attention to the economic boundary between the LLP and the company. His advisers had dealt with various inter-entity charges and transfers on arm’s-length principles, but nobody had ensured that the LLP was remunerated for the company’s use of its brand.

The Tribunal considered that commercially unacceptable.

Its conclusion was particularly stark: an entity allowing another entity to use its most valuable asset without charge was not acting commercially, irrespective of whether that happened because nobody thought about charging or because professional advisers considered that no charge was necessary.

That ought to make anybody advising on mixed LLP/company arrangements think very carefully.

Why this cuts both ways for Hybrid LLP clients

HMRC’s principal criticism of the Spotlight 63a arrangements is not simply that there was an LLP and a company.

Its argument is that the economics did not support the allocation of rental profits to the company.

HMRC says that the indemnity given in respect of mortgage liabilities did not justify treating the corporate member as having made the capital contribution claimed for it, and consequently relies on the mixed-member partnership legislation in sections 850C and 850D ITTOIA 2005 to reallocate excessive corporate profits back to the individuals. HMRC also relies upon section 809AAZA ITA 2007 concerning transfers of income streams.

That is broadly why, in my earlier article “Hybrid LLPs – My thoughts on HMRC’s Spotlight 63a”, I said that I agree with HMRC on the fundamental income-tax problem.

Read: Hybrid LLPs – My thoughts on HMRC’s Spotlight 63a

An indemnity is not the same thing as introducing cash or another asset into a business. If significant profits were allocated to a company on the premise that it had contributed substantial economic capital, when in reality that contribution did not exist in the form claimed, I struggle to see how the profit allocation can survive scrutiny.

Scheckter does nothing to change my view on that.

Indeed, its insistence upon looking at the economic relationship between the LLP and company could actually reinforce it.

But correcting the income tax does not necessarily rewrite everything else

This is where I think Scheckter becomes potentially more useful to affected landlords.

The Tribunal was perfectly capable of reaching two conclusions simultaneously.

It concluded that the LLP and company genuinely formed part of one wider commercial undertaking.

It then concluded that a particular aspect of the economic relationship between them — free use of the LLP’s brand — was not commercial and therefore produced adverse tax consequences.

Those conclusions are not contradictory.

And that distinction is potentially very important in the Spotlight 63 debate.

If a corporate profit allocation was wrong, the appropriate tax response may be to correct that allocation and tax the income on the people who economically earned or retained it.

That does not necessarily mean that every other feature of the underlying business suddenly becomes fictitious, or that the entire legal and beneficial ownership history should be reconstructed as though the LLP never existed.

That has been my concern for some time.

HMRC goes considerably further in Spotlight 63a

HMRC’s current Spotlight 63a does not stop at income tax.

It says Section 59A TCGA 1992 means that an LLP carrying on a trade or business with a view to profit is transparent for Capital Gains Tax purposes, so members continue to own fractional interests in the assets and the property’s historic base cost is not uplifted simply because it entered the LLP.

On that point, I see little in Scheckter which assists anybody arguing for a market-value rebasing.

The Tribunal actually found that the LLP’s trade was being carried on with a genuine subjective view to profit, both as part of the larger undertaking and in relation to the LLP trade itself.

Scheckter was considering different legislation, and it would be wrong to say it determines Section 59A. Nevertheless, it certainly does not provide an obvious route around the “with a view to profit” wording.

That should also now be considered alongside the Upper Tribunal’s decision in HMRC v GCH Corporation Ltd and others [2026] UKUT 219 (TCC), which confirmed that an LLP can carry on a “business with a view to profit” for Section 59A even where its activities concern investments rather than a conventional trade.

I discussed that judgment here:

HMRC loses Upper Tribunal appeal over the meaning of ‘business’

Taken together, I think the Section 59A transparency argument now looks considerably stronger than any theory that placing properties into an LLP automatically generated a market-value CGT uplift.

Where I remain less persuaded is SDLT

HMRC also says that paragraphs 10 and 14 of Schedule 15 Finance Act 2003 mean SDLT can arise both when properties enter these arrangements and where partnership profit entitlements subsequently change.

Scheckter does not determine that question either.

However, its broader reasoning reinforces something which I think should remain central to any analysis: start by establishing what actually happened economically and legally, then apply the correct tax consequences to those facts.

Do not begin with the proposition that because one tax claim fails, every transaction must somehow be reconstructed in the way producing the maximum possible tax charge.

For the Hybrid LLP cases I have looked at, that distinction may prove extremely important.

If the evidence shows that the beneficial interests were held through the LLP, the individuals’ economic interests remained reflected in their capital accounts, no meaningful capital was transferred to the corporate member and the only substantive defect was diversion of income to that company, then I believe the correction should start from those facts rather than from an assumption that everything has to be unravelled.

That is an opinion, not a Tribunal finding, and HMRC clearly takes a broader position in Spotlight 63a. Ultimately, those disputed questions may have to be determined independently.

So is Scheckter good news for Less Tax 4 Landlords clients?

I would describe it as potentially useful rather than good news.

There are three reasons.

First, the decision supports the proposition that an LLP and connected company can genuinely form part of one wider commercial undertaking despite being different legal persons.

Second, it shows that recognition of that wider undertaking does not prevent the Tribunal examining particular dealings between the entities and correcting those which do not make commercial sense.

Third, it demonstrates why the right response to a defective tax allocation is not necessarily to pretend the wider commercial undertaking did not exist.

That third point may ultimately be the most important for affected landlords.

This is not a rescue judgment

I want to be particularly clear about that.

Mr Scheckter lost his appeal. The case concerned farming losses under entirely different statutory provisions. It did not consider sections 850C or 850D, section 809AAZA, Section 59A TCGA in the context of the Spotlight 63 arrangements, or Schedule 15 SDLT.

It is also a First-tier Tribunal judgment, so it does not carry the precedential authority of an Upper Tribunal decision.

Anybody presenting Scheckter as proving that the Less Tax 4 Landlords structure works would, in my view, be doing affected landlords another disservice.

What it provides is something more subtle: useful judicial reasoning about how a genuine commercial enterprise spanning an LLP and a company can be recognised while the tax consequences of their dealings are still tested independently.

The path forward remains correction, not denial

My view therefore remains broadly where it was before Scheckter.

For landlords caught in these arrangements, the priority should be to establish the actual facts, calculate the income tax that should have been paid, deal with interest and any properly due liabilities and then resolve the legal and tax position without creating additional liabilities unnecessarily.

Property118 has a separate page explaining the help available to landlords affected by Less Tax 4 Landlords and Spotlight 63, including the need for independent tax and legal advisers and commercial analysis of how any eventual settlement can be funded.

Help for landlords affected by Less Tax 4 Landlords and HMRC Spotlight 63

The new Scheckter judgment does not make those problems disappear, but it may help sharpen the analysis.

A multi-entity business can still be one genuine commercial undertaking. That does not mean every allocation between its entities works for tax purposes, but neither does a defective tax allocation necessarily mean the underlying business arrangements should be treated as though they never existed.

For landlords now trying to put these matters right, that distinction could turn out to be very important.

Read Jody Scheckter v HMRC [2026] UKFTT 1280 (TC) in full

Read HMRC Spotlight 63a