Hybrid Tax Structure – Landlords BEWARE!

by Mark Alexander

12:23 PM, 12th September 2018
About 3 years ago

Hybrid Tax Structure – Landlords BEWARE!

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Hybrid Tax Structure – Landlords BEWARE!

WARNING!

The way the “Hybrid Structure” is currently being touted by one particular firm as a ‘one-size-fits-all’ solution to the issues associated with the phased removal of finance cost relief could very easily result in people falling foul of HMRC’s “Transfer of Income Streams” legislation under The Finance Act 2009 schedule 25 – please see the link below.

http://www.legislation.gov.uk/ukpga/2009/10/schedule/25

To summarise the legislation; if you transfer part or all of an income stream without also proportionately transferring the underlying business assets the tax advantage is non-existant, save for any reasonable consideration at market rates. For example, if a company is a member of property investment partnership it may charge up to 15% of gross rents for the management of the properties, subject to that being the market rate and there being no other management company used of course.

The phrase “Hybrid Structure” is a made up name for branding and marketing purposes. You will not find any mention it in official tax guides or on the HMRC website.

The correct name for the structure, in accordance with legislation and HMRC manuals, is “Mixed Partnership”.

In some circumstances Mixed Partnership structures can prove useful, and sometimes we even recommend them. I have written an article about mixed partnerships which can be accessed via THIS LINK.

However, it has come to our attention that some people are paying up to £3,000 to learn how the “Hybrid” scheme works and up to £17,000 + VAT for implementation. That is just plain ludicrous!

When Property118 recommends a Mixed Partnership structure, not only does our £400 fee for a consultation include a written report and recommendations explaining why we recommend it, we also provide links to the relevant HMRC guidance manuals and legislation. Also included in the £400 consultation fee is Counsel’s opinion on our report and recommendations from Mark Smith, Barrister-At-Law and Head of Chambers at Cotswold Barristers. He then charges just £4,995 + VAT if you instruct him to deal with all the legal work associated with the formation and registration of a Mixed Partnership, which includes:-

  • Partnership agreement professionally drafted. The partnership agreement will need to be drafted in such a way to enable disproportionate allocation of profit between individual partners
  • Complete and file form SA400 with HMRC to formally register the partnership
  • Complete and file form SA401 with HMRC to formally register individual partners
  • Formation of management company
  • To officially appoint the Limited as a corporate partner in the business and register that fact with HMRC by completing and filing form SA402 with HMRC

If you know of anybody who is considering the “Hybrid Structure”, please alert them to this article.

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