Hybrid LLP structures GAME OVER!

Hybrid LLP structures GAME OVER!

16:05 PM, 15th May 2023, About 10 months ago 12

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It’s game over for most Hybrid LLP tax structures.

A “Hybrid” / Mixed LLP is a Limited Liability Partnership where one or more Members is a Limited Company.

Following our article “How Property118 Are Helping A Landlord To Resolve A Serious Hybrid LLP Tax Planning Blunder” we have discovered two other firms of Accountants that have created the very same nightmare tax scenario for their clients.

In 100% of the cases reported to us since we published our article the following commonalities have existed: –

  1. the landlords affected had been persuaded to fire their previous accountant and move their business to the Accountant recommending a Hybrid LLP structure
  2. their previous Accountants all said the ‘scheme’ being offered made no sense to them and advised against it
  3. they were advised that a Hybrid LLP would solve their Section 24 tax problem
  4. they were advised that a Hybrid LLP would solve their IHT problems, even though their business is clearly a property rental business
  5. the advice was given by Accountants only and with no independent legal advice in regard to the legal documentation produced

If you think you might be affected it is extremely important you don’t panic or act in haste, which could make things worse for you. Below is some initial practical advice.

  • Please use the ‘wizard’ form we have created below to assess your level of risk.
  • If you need to contact the person who recommended a “Hybrid” / Mixed LLP structure to you, we strongly recommend you only communicate in writing with them. If they offer to call or meet you we suggest you only agree to a recorded video conference using Zoom. It is important at this stage that you build your case.
  • We recommend you DO NOT appoint a new Accountant or change the registered office address of your LLP or Limited Company at this stage.
  • It could work against you if you contact HMRC yourself. They much prefer matters of this nature to be reported in line with professional protocols.

Within the next month or so we will be inviting all affected people who have completed and submitted the form below to attend a webinar hosted by Property118 and Cotswold Barristers with the following Agenda:-

  • what is likely to happen if you do nothing
  • why HMRC are likely to be far more lenient if they are contacted before they contact you
  • the work required to report the correct tax position to HMRC and the typical costs of doing so
  • the process of recovering any damages you have suffered

To make it viable for us to run this webinar we need at least 50 people to register their interest. Therefore, if you know of anybody else who might be affected please let them know. If we do not receive that level of interest within the next month or so we will have to reconsider how to progress matters. Our objective at this stage is to keep costs to a minimum.

Please note that we do not have the human resources to speak to you on a one-to-one basis about your case at this point in time, but you are welcome to post questions in the comments section below and we will do our best to answer them.

Mark Smith, Head of Chambers at Cotswold Barristers said …

“This is not a knee-jerk reaction or an attempt to undermine other advisers’ work for the sake of it. Believe me, we are busy enough with our own clientele.

This arises from a number of landlords approaching us with concerns about the robustness of their structures and the correctness of the filings at HMRC and Companies House made in their names.

We cannot sit on our hands when landlords have major problems in their business structures, and these issues are compounding year on year. We have had discussions with one of the major purveyors of this structure, and we agreed to differ. So we have had attempts to work together, but these have been frustrated by lack of transparency by the other advisers, so we were left trying to reverse-engineer what had been put in place.

It is only recently that we have been able to look under the bonnet as it were, with the landlords who have approached us and shown us in detail what has been done in their names, The article is a result of this. It is not guesswork or keyboard-warrior posturing, it is real life for these people and many others. We would have liked nothing more that to have realised that this structure worked as implemented, and no landlord would be in difficulties, but sadly that was not the case.”

Neil Patterson, Managing Director at Property118 Limited said …

“For anyone with a Hybrid LLP it is only a matter of time before HMRC open an investigation into the reporting of their accounts.  I believe we have a moral obligation to warn those people. How they react to those warnings is for them to decide.”


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Comments

Alex Gillies

11:00 AM, 15th May 2023, About 10 months ago

When structured correctly, the hybrid model is still legal and efficient though, correct? Or would you advise against this structure at all costs?

JaSam

11:09 AM, 15th May 2023, About 10 months ago

Can only assume this is pointing the finger towards LT4L and maybe others?

Mark Alexander - Founder of Property118

11:41 AM, 15th May 2023, About 10 months ago

Reply to the comment left by Alex Gillies at 15/05/2023 - 11:00
In answer to your question below ...

"When structured correctly, the hybrid model is still legal and efficient though, correct?"

Yes of course. However, if you're being told that a Limited Company Member of an LLP can account for all finance costs of properties not owned by the LLP in order to avoid Section 24 that is wrong. Likewise, if you have been advised that moving properties into an LLP re-sets the base costs for CGT purposes, that is also wrong.

A property investment business within an LLP does NOT qualify for Business Asset Disposal Relief for the purpose of inheritance tax either, but some people have been advised that it does.

Some people have also been incorrectly advised that they can divert profits they wish to retain within their LLP to the corporate Member in order to pay only corporation tax as opposed to higher rates of personal income tax, regardless of the ownership of the properties.

If you're not doing any other of the above you are certainly less exposed to risk.

Accommod8

11:41 AM, 15th May 2023, About 10 months ago

Responding to JaSam above, recently attended Excel Property Investment Show where both Prop118 and LT4L were presenting, and both appear equally knowledgeable and specialised. Would be useful for many to know JaSam whether both models are 100% plausible, as each has a suite of highly experienced professionals.
Hope you don't find the post contentious.
Accommod8 Ltd.

paul thomason

11:54 AM, 15th May 2023, About 10 months ago

Reply to the comment left by Alex Gillies at 15/05/2023 - 11:00
Do we have to start this silliness yet again . Please stop this landlords have enough challenges at moment rising intrest rates more and more regulation possible rent freezes other accountants are not enemy’s

Mark Alexander - Founder of Property118

12:22 PM, 15th May 2023, About 10 months ago

Reply to the comment left by paul thomason at 15/05/2023 - 11:54
We are not Accountants Paul.

I am sorry to read that you believe we are being silly by helping landlords to put their tax affairs in order, by coming clean with HMRC and paying what they owe; whilst also helping them to protect their own position before it is too late for them, and also helping them to recover the damages they have suffered as a result of the actions of their advisers.

We are not judging the affected landlords.

Accommod8

11:28 AM, 16th May 2023, About 10 months ago

Should have reiterated that the final sentence of my previous post above is directed at 118. rather than Jasam.
I like to look people in the eye, so I hope all the advice given professionally by whoever is more than 100% watertight, having presumably done their research thoroughly with full checks and balances, as we are considering peoples' futures here.
I hope this isn't to an extent a case of posturing between who I perceive as the two heavyweights in the "structuring landlords businesses and tax affairs" industry, assuming I am reading between the lines correctly.
Apologies all round if I'm not, but the article heading is rather dramatic Mark, but presumably strategic.

GlanACC

8:10 AM, 18th May 2023, About 10 months ago

A lucky escape there. I was looking at this as I operate on both a partnership and a LTD company level. My accountant told me over a year ago that this is an area the revenue would be 'looking at' and he wouldn't recommed it for my circumstances. So I didn't do it.

Mark Lewczynski

6:51 AM, 23rd May 2023, About 9 months ago

Reply to the comment left by Alex Gillies at 15/05/2023 - 11:00
Hello Alex

I've had a hybrid arrangement set up by LTFL since 2017 and it has worked very well.

Although the start up and initial legal costs were quite high (about £12k for a portfolio of about 15 properties) I've since sold two properties (without CGT which negated all the start up costs several times over) and have bought 4 new ones.

I'm happy with the amount of tax I've paid and HMRC haven't raised any issues with me even though I hear from them several times a year by post.

If I ever have an accounting question for LTFL I'm always surprised by how quickly I receive an answer from director level. The general administrative support is equally impressive.

I think different arrangements work for different people and their specific circumstances.

In case you have any follow up questions, I'm happy for the moderator to give you my email address.

Yours sincerely
Mark Lewczynski

Mark Alexander - Founder of Property118

9:34 AM, 23rd May 2023, About 9 months ago

Reply to the comment left by Mark Lewczynski at 23/05/2023 - 06:51
Thank you for posting this valuable piece of evidence, which I have now taken a screenshot of just in case you subsequently decide to delete it.

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