9:29 AM, 19th October 2023, About 7 months ago 28
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The integrity of landlord business incorporation has been massively damaged by the attack on Property 118 and Cotswold Barristers by Dan Neidle (DN) and his largely anonymous Tax Policy Associates. In an effort to bring some stability to the situation we are left with no choice but publicly to explain in detail the history and operation of the SIS in the hope that he will adhere to his undertaking to retract his reckless destabilising allegations.
This article is the first in a series that will address all the allegations made by DN.
Tax avoidance has been defined in various ways. The most relevant is of course from HMRC.
Tax avoidance involves bending the rules of the tax system to try to gain a tax advantage that Parliament never intended.
It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.
The SIS is not tax-avoidance. The structure uses reliefs and exemptions in the manner intended by the legislature. There are no contrived steps with no commercial purpose. CGT incorporation relief, the SDLT rules, and the ESC/D32 shows that it is the intention of the legislature, supported by HMRC’s practice, to allow businesses to transition from one platform to another as they mature, without negative tax consequences, so long as the underlying ownership remains the same and in the same proportions on each side of the transaction. This is of particular relevance to the private rented sector given the tax regime that applies to unincorporated sole traders and partnerships, which puts an additional incentive on such business owners to move into the more transparent structure of a limited company.
The only difference between the SIS and incorporation with the concurrent transfer of loans (as advocated by DN) is the timing of the transfer of the legal titles. There is no difference in the ultimate purposes of the structures, such as limited liability status, to help succession planning, professionalisation, development of the business by use of retained profits, improved mortgage affordability criteria as well as optimisation of the tax structure.
It is also of great significance that in over 20 compliance checks since 2019 HMRC has never hinted that they consider the SIS to be contrived, artificial, or not for legitimate purposes. It is impossible to predict which case will be selected for HMRC enquiry, as to the best of our knowledge they are selected at random. This means that every case must be approached as if it was going to be enquired into, and thus every case must meet the criteria for qualification for the reliefs and tax treatments claimed.
These enquiries are comprehensive and often run for many months. The appointed tax agent deals with the enquiry, with the assistance of Property118 and the client’s appointed barrister.
HMRC requires;
The requirements of HMRC are satisfied by;
What we are able to say is that where a client who has used the SIS is enquired into by HMRC the response is sent by the tax agent and is always complete and transparent. Nothing is concealed from HMRC. This would not be allowed by HMRC in any event; they want to know everything relevant to the tax treatment of the transactions, which is the whole purpose of the enquiry.
Each completed enquiry has been closed with no adverse consequence to the client and HMRC concurrence with the claimed tax treatment. This is as near as is possible to us being able to say HMRC says SIS is ‘fine’: which HMRC will never say.
SIS is ‘fine’ when the client’s particular case meets the criteria to justify the tax treatment claimed. These criteria are correctly identified according to the outcomes from HMRC to date. HMRC will never say any tax planning is ‘fine’, but our record of success to date in the face of a significant number of detailed enquiries over several years must result in us being able to say with confidence that SIS is compliant with all tax rules where properly implemented.
DOTAS (Disclosure Of Tax Avoidance Schemes)
We have advised HMRC of our reasoning for not notifying SIS under DOTAS. The SIS has been known to HMRC since 2019 and has been scrutinised on at least 20 occasions by way of the compliance checks mentioned above. We have always endeavoured to assist our clients and their professional advisers with absolute transparency to HMRC and have no wish at all to breach any regulatory requirements.
The submissions on the relevant hallmarks, in summary, are:
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Susan Bradley
14:20 PM, 20th October 2023, About 7 months ago
Reply to the comment left by Jim Fraser at 20/10/2023 - 14:10
Please read my earlier post on this very topic. I think it is the 8th in the thread but there or thereabouts.
In a nutshell some words/phrases have different meanings according to the the audience being either fellow specialists or the general public.
Lordship
12:02 PM, 21st October 2023, About 7 months ago
Had an accountant gone to HMRC to explain to them that they were looking at promoting the SIS route to landlords as a way to avoid having to pay additional tax now being implemented following the introduction of S24, would they have supported them?
Why was S24 introduced?
Seething Landlord
12:37 PM, 21st October 2023, About 7 months ago
Replying to Susan Bradley "In a nutshell some words/phrases have different meanings according to the the audience being either fellow specialists or the general public."
It is more a matter of looking for definitions within the document or legislation under consideration, where certain words will be given specific meanings and have to be interpreted accordingly. In some instances it will be a matter of reviewing case law where a precedent might have been created. In the absence of such a definition, the courts will normally give words their common meaning.
Most will be familiar with this in the context of insurance policies where such terms as "unoccupied" are closely defined.
In the case of DOTAS, examples are "in-house" and "premium fee".
Giles Peaker
21:45 PM, 21st October 2023, About 7 months ago
Reply to the comment left by Mark Smith Head of Chambers Cotswold Barristers at 20/10/2023 - 11:18
Mark, you should explain that first they would have to establish you had been negligent. And that means bringing a claim in professional negligence.
You should also explain that the PI insurance wouldn’t pay for any tax liability even if you were found to be negligent, just, at best, any fines and penalties.
Accommod8
12:56 PM, 22nd October 2023, About 7 months ago
Although not using either of the two firms rightly or wrongly referred to across various articles and posts, seemingly sparked by Dan Neidle's perhaps contentious and perhaps provocative one, we have recently embarked on setting up a Family Investment Company/FIC through a tax specialist landlord accountancy firm.
Having made our rudimentary efforts at understanding whether we are doing the right thing and, albeit not involving partnerships/LLPs in our case, we do have complete trust in their organisation, but you can't be blamed for it somewhat giving you the jitters over any form of re-structuring.
Apologies if anyone feels this is not the appropriate thread on which to comment.
Giles Peaker
17:47 PM, 22nd October 2023, About 7 months ago
Reply to the comment left by Giles Peaker at 21/10/2023 - 21:45
I think you should also clarify that the £10 million insurance is not per client, but 'per claim' so including any related claims. This site has been portraying the £10 million as 'per client', and I'm sure you would want that inaccuracy corrected.
Jim Fraser
8:23 AM, 24th October 2023, About 7 months ago
Reply to the comment left by Accommod8 at 22/10/2023 - 12:56
Dear Accommod8. Whilst I cannot advocate on the efficacy of such business structuring, a Family Investment Company appears to be a widely used and well understood form of business structure. I saw an FT article some years ago about an investigation undertaken by HMRC on these structures and they made an (unexpected) public statement endorsing their use in the correct circumstances. Like all these issues, perhaps the devil is in the detail, but if your advisers recommended this form of business structure for you with good reason, then I doubt that you should have any cause for concern.
Accommod8
20:53 PM, 24th October 2023, About 7 months ago
Reply to the comment left by Jim Fraser at 24/10/2023 - 08:23
Thanks Jim.