Just say NO to tax avoidance “schemes”

by Mark Alexander

15:34 PM, 30th August 2019
About 3 weeks ago

Just say NO to tax avoidance “schemes”

Make Text Bigger
Just say NO to tax avoidance “schemes”

For the avoidance of any doubt, let’s first be clear of what a “scheme” is.

DOTAS (Disclosure of Tax Avoidance Schemes) is the acronym used for the procedure introduced by the UK government in 2004 aimed at minimizing tax avoidance. Tax avoidance in the UK, unlike tax evasion, is not illegal since it involves using the available tax laws to reduce one’s tax burden. However, the government is actively seeking ways to eliminate the methods by which tax can be avoided by continually amending its tax policies.

The primary purpose of the Disclosure of Tax Avoidance Schemes (DOTAS) is to alert Her Majesty’s Revenue and Customs (HMRC) of the schemes which individuals or corporations use to avoid tax. HMRC can investigate these schemes and their providers and, as a result, may amend legislation where deemed necessary to reduce tax avoidance options that can circumvent the law. Under the DOTAS legislation, anyone involved in an arrangement which offers tax benefits must notify Her Majesty’s Revenue and Customs (HMRC).

The types of tax covered by the DOTAS requirements include income and capital gains tax, corporate tax, stamp duty land tax, inheritance tax, value-added tax (VAT), and national insurance contributions.

Disclosure is required to be made by any party entering a program which offers the benefit of minimizing taxes if the program falls within the disclosure rules. Anyone failing to comply with these DOTAS regulations may have penalties imposed.

Source >>> https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp

Let’s also be clear that none of the following property ownership structures are schemes:-

  • sole owner
  • joint ownership
  • ordinary partnership
  • Limited Liability Partnership
  • Limited Company
  • SIPP/SSAS/QNUPS/QROPS/EPUTS/REIT
  • Plc.

Both HMRC and the Government are aware that businesses evolve and their owners may well want to attract new investment or to bring in business partners. Likewise, owners of family run businesses (such as rental property business owners) often want to do some succession planning, to increasingly involve the next generation in the running of their business to ensure they are not completely tied to it for life.

The above are just a few examples of how businesses evolve, there are many more.

To facilitate the evolution of businesses, the Government created legislation to ensure that owners of businesses are not penalised during metamorphic stages, e.g. when transferring from sole ownership to a Partnership or when a Partnership transfers its whole business into a limited company structure.

One such example of this is TCGA92/S162 which says …

“TCGA92/S162 applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares. Provided that various conditions are satisfied, see CG65710, the charge to CGT on the whole or part of the gains will be postponed until such time as the person transferring the business disposes of the shares.

The way the relief works in practice is that all or part of the gains arising on the disposals of the assets are ‘rolled over’ against the cost of the shares.

Relief under TCGA92/S162 is sometimes referred to as ‘incorporation relief’.”

Source >>> https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65700

The role of the Property118 Tax Team is to identify the optimal business structure for landlords, having considered the available transitional reliefs and provided links to HMRC manuals and legislation, and then to obtain quotations for implementation. Where appropriate, such as when transferring shares of companies into a group structure, non-statutory clearance continues to be available from HMRC.

Our recommendations are always bespoke. Prior to implementation they must first be adopted by a fully qualified, experienced and insured Barrister-At-Law (who is regulated by the Bar Standards Association) as his own “professional advice”. His professional indemnity insurance is provided by Bar Mutual and cover is for up to £2,500,000 per claim. Unlike solicitors and accountants, barristers cannot absolve themselves from accountability by operating within a Limited Liability structure.

Methods and structures recommended to negate the need to refinance when transitioning from one business structure to another are not schemes either, e.g. substantial incorporation or transfers of beneficial interest between spouses, into Partnerships/LLP or Limited Companies. Neither do such structures change anybody’s tax position. That occurs as a result of a change of ownership structure.

In addition to DOTAS, HMRC also has powers under GAAR “General Anti Avoidance Rules”

An example of this anti-avoidance legislation can be found in the Finance Act 2003, to prevent sole owners from avoiding Stamp Duty by forming a Partnership and then immediately incorporating the business. If such a transition occurs within three years, and/or if HMRC can demonstrate that the partnership was formed for no other commercial purpose other than to avoid Stamp Duty, then the relief provided within the same legislation is disallowed.

Landlord Tax Planning Consultancy is the core business activity of Property118 Limited (in association with Cotswold Barristers).

Professional advice from a qualified Barrister-At-Law, insured up to £2,500,000 per claim.

Show Form To Book A Tax Planning Consultation
Consultations include new client compliance checks, fact find via email with complimentary software, expert analysis, a detailed written report and recommendations and a 30 minute Q&A session via Skype or telephone. We GUARANTEE total satisfaction or a full refund.
  • Please provide an overview of your circumstances and what you are looking to achieve.

There will never be an optimal ‘one-size-fits-all’ business structure for tax purposes. The presentation below provides a useful overview of some of the options you might like to discuss with us.



Comments

Alan Bromley

16:15 PM, 4th September 2019
About 2 weeks ago

As someone who did a couple of contrived tax avoidance schemes back in 2004-5 I strongly advise you all never to do them. One of the schemes is still subject to final settlement. Needless to say, both scheme have resulted in me paying more tax than I would have done had I taken the money out of my company via accepted routes. If something sounds dodgy, it almost certainly is!

moneymanager

9:08 AM, 6th September 2019
About 2 weeks ago

Reply to the comment left by Alan Bromley at 04/09/2019 - 16:15
"If something sounds dodgy", you can't rely on that. Gordon Brown introduced specific provisions known as Section 42 and 48 to encourage investment in film production, this was the era of Cool Brittania, it didn't initially work too well.

After some tax gurus and investment specialists got together they came up with Sale & Leaseback, a perfectly normal (as recorded in Hansard) means of business financing. Those schemes (subsequently DOTAS reportable) gave loss releif at outset, almost always on a geared amount, bu the subsequent income stream meant that from DAY ONE, HMRC was going to get more cash back in income tax than it had paid out albeit it spread out, the rise in tax rates increased that.

Years later, after Brown had crowed about his success, HMRC decided to take a pop probably because Osborne had coffers that needed filling. There certainly were dodgy deals which deserve to have been hit but hundreds if not thousands of perfectly ordinary people such as medics have been under enormous strain, financial, mental, and physical to the point beyond suicide and bankruptcy.

Sorry, rant over.


Leave Comments

Please Log-In OR Become a member to reply to comments or subscribe to new comment notifications.

Forgotten your password?

OR

BECOME A MEMBER

Property118 Landlord Insurance Achieves National Recognition

Landlord incorporation and tax planning presentation

Landlord incorporation and tax planning presentation

Incorporation relief and latent gains explained

Incorporation relief and latent gains explained

Incorporating your property portfolio without having to refinance

Incorporating your property portfolio without having to refinance

Capital Account Restructure – Case Study

Capital Account Restructure – Case Study

Stamp Duty when transferring the ‘whole business’ of a Partnership into a Limited Company

Stamp Duty when transferring the ‘whole business’ of a Partnership into a Limited Company

Software to analyse the viability of transferring a property rental business into a Limited Company

Software to analyse the viability of transferring a property rental business into a Limited Company

Inheritance tax and legacy planning for property company owners

Inheritance tax and legacy planning for property company owners

HMRC Internal Manuals ‘Landlord Incorporation’

HMRC Internal Manuals ‘Landlord Incorporation’

On-demand webinar explaining the uses of Limited Liability Partnerships “LLP’s” for landlord tax planning

On-demand webinar explaining the uses of Limited Liability Partnerships “LLP’s” for landlord tax planning

Guide for landlords on forming an LLP for property investment

Guide for landlords on forming an LLP for property investment

LLP structure reduces landlords tax bill by 85% – CASE STUDY

LLP structure reduces landlords tax bill by 85% – CASE STUDY

Partnership taxation and associated rules

Partnership taxation and associated rules

Business continuity and succession planning for landlords

Business continuity and succession planning for landlords

Property valuations for tax planning purposes cost just £19.95 each

Property valuations for tax planning purposes cost just £19.95 each

Hybrid Tax Structure – Landlords BEWARE!

Hybrid Tax Structure – Landlords BEWARE!

Tax Planning Bodge Jobs – Limited Liability Partnerships “LLP’s”

Tax Planning Bodge Jobs – Limited Liability Partnerships “LLP’s”

Landlords Tax Planning Bodge Jobs – inter company lending

Landlords Tax Planning Bodge Jobs – inter company lending

A Landlord’s Tax Planning Disaster

A Landlord’s Tax Planning Disaster

Just say NO to tax avoidance “schemes”

Just say NO to tax avoidance “schemes”

The Landlords Union

Become a Member, it's FREE

Our mission is to facilitate the sharing of best practice amongst UK landlords, tenants and letting agents

Learn More