HM Revenue & Customs has warned landlords and agents about schemes it says do not work, urging caution over arrangements that promise simple tax savings on rental income. The tax authority said the schemes should raise a red flag and could leave investors facing backdated bills, interest charges and penalties.
The warning centres on so-called hybrid property business models being promoted as a way to reduce tax liabilities and work around restrictions on mortgage interest relief. HMRC said the structures are fundamentally flawed and could leave people in a worse position than before.
HMRC warning on property structures
According to HMRC, the arrangements usually involve transferring properties into a limited liability partnership, or LLP, that includes a company as a corporate member. Promoters claim this can redirect profits into a company subject to Corporation Tax rather than higher-rate Income Tax.
HMRC said legislation means profits artificially diverted to a corporate partner are likely to be reassigned back to the individual landlord. It added that other rules can still treat the rental income as belonging to the landlord even if it has been moved into another structure.
The tax authority also warned that landlords using these schemes could face Stamp Duty Land Tax on property transfers, Capital Gains Tax implications and possible exposure to the Annual Tax on Enveloped Dwellings for high-value properties. It also said professional fees for setting up and maintaining the arrangements may add to the cost.
Landlords already involved in such schemes are being encouraged to come forward promptly and contact HMRC to unwind arrangements and bring their tax affairs up to date. HMRC said acting early can help reduce risk.
Pressure on scheme promoters
The warning also extends to the people behind the schemes. HMRC said promoters who fail to disclose avoidance arrangements could face penalties of up to £600 a day, rising to as much as £1 million if necessary as a deterrent.
The department said it will use its full powers against anyone involved in designing, selling or facilitating tax avoidance schemes, and may publicly identify those responsible.
Quantexa contract with HMRC
Separate HMRC news has also emerged around a long-term partnership with Quantexa. The company said it has been awarded a £175 million, 10-year deal to modernise HMRC’s data foundation and support governed AI at scale.
Quantexa said the programme will support HMRC’s core data infrastructure, give the tax authority a clearer and more connected view of its data, and help identify tax at risk. It also said the work is intended to improve efficiency, strengthen control and enhance the customer experience for UK taxpayers.
The company described the project as part of wider transformation efforts and said it will help lay the groundwork for advanced AI capabilities.
The twin developments put HMRC in the headlines for both enforcement and modernisation, with one message aimed at landlords considering tax-saving arrangements and another focused on data and technology investment.
