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Transfer of Beneficial Interest to LLP

Would this fall under anti tax avoidance legislation

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Certain lawyer and tax advisers are advocating those with sizable property portfolios transfer their property "business" to an LLP.

By transferring the benefical interest to the LLP they will avoid SDLT and Capital Gains Tax.  The mortgages and legal ownership will remain with the individuals.  In three years time the LLP will transfer the properties to Limited company and reduce inheritance tax (plus other tax advantages).  Though looks like the government is about to put to an end to this major tax benefit of Family Investment Companies and therefore any inheritance tax gains maybe lost.

Would the transfer to LLP come under GAAR as just seems too good to be true ?  I am seeing a lot of landlords who are signing up for such schemes who ultimately may end up with large tax bills if the government plugs this loophole. 

Replies (8)

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By johngroganjga
25th Feb 2020 16:01

What tax is being avoided?

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Replying to johngroganjga:
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By sanjay100
25th Feb 2020 16:10

CGT and SDLT and maybe later inheritance tax

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By johngroganjga
25th Feb 2020 17:32

How?

PS
Do you mean that the tax consequences of a property being transferred into a company out of an LLP are different from those of a property being transferred into a company direct by individuals?

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Replying to johngroganjga:
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By sanjay100
25th Feb 2020 18:56

When the beneficial interest is transferred from property owners to LLP (all connected parties) using deed of trust. The LLP is usually owned with family members with mortgages on the properties. There would be SDLT and CGT implications

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By johngroganjga
26th Feb 2020 08:55

sanjay100 wrote:

There would be SDLT and CGT implications

If there would be those implications, how is this better than doing nothing, which when I last heard carried no such implications?

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ALISK
By atleastisoundknowledgable...
25th Feb 2020 21:51

I have heard if this scheme - 1 of my clients has even mentioned it to me. I suspect it’ll be just another of those tax Sch news that in about 4 years HMRC re-write the historical guidance to have made it illegal and demand huge interest.

I’m going to be interested in where this thread goes...

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Replying to atleastisoundknowledgable...:
Hallerud at Easter
By DJKL
25th Feb 2020 23:42

There have certainly been previous threads on here discussing going from bare partnership to LLP and then limited, with SDLT reliefs along the way.

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By The Dullard
26th Feb 2020 10:58

It is the case that:
- there is no SDLT on individuals transferring interests in property to a partnership (including an LLP) comprised wholly of individuals connected to the transferees,
- there is only CGT on such a transfer to the extent that there is an effective transfer of beneficial ownership to persons other than the transferee's spouse/CP,
- there is also no SDLT on a transfer of property interests from a general partnership to an LLP, within one year of incorporation of the LLP, where the members of the LLP are the same as the partners in the general partnership and the effective interests in the property remain in the same proportions (or any change in proportions is not done as part of avoidance arrangements),
- there is no SDLT on a transfer of property from a partnership (or LLP) to a limited company if the company is a connected person in relation to all of the transferee partners (LLP members), and
- there is no CGT if individuals (including members of a partnership or LLP, viewed transparently) transfer the whole of a business (with the possible exclusions of cash and liabilities of the business) to a limited company for a consideration wholly comprised of shares in the limited company. Such a business might include a property business and HMRC/the tribunals/courts may well be more ready to accept that such an activity carried on by an LLP (which can only be incorporated for the purposes of carrying on a business and, if it does not carry on a business, will be taxed as a company, for which such an activity will always be regarded as a business).

Those are all matters in relation to which there is specific legislation, providing specific reliefs (or deemed amounts of consideration).

For SDLT purposes, there is a specific anti-avoidance provision (that does not contain an avoidance motive test, and so will apply if tax is simply avoided) that applies where there is a scheme of arrangements involving a number of transactions where the total tax payable under all of those transactions is less than the tax that would have been payable under the composite transaction achieved by the overall scheme.

A trust/nominee arrangement is an oft used legal technique to transfer beneficial ownership (which is what CGT and SDLT looks at) without going through all the legal niceties of formal conveyance. It is not anything *naughty*, but it may have its own consequences; there are not likely to be any such consequences where the transferee is a transparent entity (such as a general partnership or an LLP carrying on a business) and the transferors are its partners/members, holding the effective beneficial interests in the same proportions.

So, boys and girls, there may be avoidance schemes out there (which might or might not fail), but there are also likely to be people out there making commercial decisions in the course of carrying on a property business that genuinely entitle them to avail themselves of said reliefs.

What is genuinely unhelpful to those people is a bunch of uninformed numpties spouting out of their @r5es on an internet forum, just because they haven't got the first fuching clue about any of it.

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