Major Breakthrough in Landlord Tax PlanningMake Text Bigger
He’s only gone and done it again!
This time it’s in regards to partnership SDLT/LBTT relief on incorporation.
Mark Smith is no stranger to challenging conventional interpretation of laws effecting landlords, but the news I got this weekend may well be regarded in the fullness of time as his biggest breakthrough to date.
Accountants and tax lawyers have widely held the opinion that to qualify for incorporation relief, which exempts landlords from paying Stamp Duty (LBTT in Scotland) on the incorporation of a property investment partnership, the business must be recognised by HMRC by having a partnership Unique Tax Reference number “UTR” and having filed partnership tax returns. However, Mark Smith staked his professional reputation and his PI insurance on on this being irrelevant. The opinion he has long since held is that a partnership is defined by the Partnerships Act 1890 and that eligibility for the relief follows the same arguments in what constitutes a “business” as in the HMRC vs Ramsay case.
Yet again, Mark Smith has been proven to be right.
Today I learned that a handful of Property118 readers have successfully obtained advance voluntary clearance from HMRC for incorporation relief under both s162 TCGA and for partnership stamp duty relief despite the apparent odds being against them.
In one example that Mark Smith explained to me a husband and wife jointly own a portfolio of rental property and spend in excess of 20 hours managing their business. They have never filed partnership returns, nor do they have a partnership UTR. They don’t even have a business trading name!
Nevertheless, they had always operated a joint business bank account and with professional guidance were able to document why they believed themselves to be operating both a business and a property investment partnership based on Mark Smith’s interpretation of the law. This was the basis of their clearance request to HMRC, which also included details of their their intention to transfer 100% of beneficial ownership in exchange for shares in the new company, but not legal ownership at the point of incorporation.
I am delighted to report that HMRC clearance was granted on all points.
I must point out that it was the clients tax advisers that sought and obtained the HMRC clearance and not Mark Smith, as this is not his remit. Perhaps it should be though?
A few of the properties were owned by the couple individually but rental profits had been declared on self-assessment returns as 50/50. Again this defies conventionally accepted accounting logic but was nevertheless accepted by HMRC as proof of the existence of the partnership.
In view of the above we have amended the Portfolio Restructure Software used in our tax planning consultations. At the same time we have also updated the tax bands and allowances in accordance with announcements the Chancellor of the Exchequer’s Spring 2017 Budget.
Other notable achievements for landlords by Mark Smith
In June 2017 Mark Smith’s opinion that mortgage lenders could not call in a long term mortgage unless the borrower was in default was also upheld by the Court of Appeal (see Mark Alexander vs West Bromwich Mortgage Company). This case came off the back of the UK’s largest ever direct access representative action case. The mortgage lender had added a premium to some of its lifetime Bank of England base rate tracker rate mortgage margins. Two of the largest landlord associations refused to back my case in any way and instead referred their members to the Financial Ombudsman Service “FOS” to make complaints. Insurers also refused to back the case and both the FOS and the High Court sided with the mortgage lender before the case was eventually awarded to the Property118 Action Group by the Court of Appeal. With the help of Cotswold Barristers we managed to raise sufficient money to fund an adverse costs award if we had lost the case. However, this wasn’t necessary because the entire £27,500,000 of illegally overcharged tracker mortgage interest was ordered by the Court of Appeal to be refunded. Furthermore, the entire costs of the case were recovered from the other side and the Court also awarded compensation interest. The crowd-funding monies raised were, therefore, returned in full.
In 2015 Mark Smith created a legal product which enabled landlords to incorporate without having to refinance. Industry perception was generally skeptical about this too, however, Mark Smith has since proven his critics to be wrong.
A very special relationship
When Property118 formed The Landlords Union last year it was inevitable that Mark Smith would become our Honorary Legal Counsel. We now speak on a daily basis and consult each other on all tax strategies we recommend. Cotswold Barristers insist upon Property118 Portfolio restructure Software being completed before they will accept tax planning related instructions. This software is provided to all consultancy clients of Property118.
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