HMRC crack down on moving properties from personal to partnership (LLP)

If you’re a landlord who’s been approached about a “clever” tax scheme involving limited liability partnerships (LLPs), you need to read this and take note. HMRC issued Spotlight 69 earlier this year, and it’s sending a very clear message: those LLP property schemes being marketed to landlords simply don’t work.

Last month, a local property investor came to see us in a panic. She’d been approached by a promoter offering what sounded like a miracle solution to her capital gains tax worries. The scheme involved transferring her rental properties into an LLP, liquidating it, and moving everything into a limited company. “It sounds too good to be true,” she said. And she was absolutely right to be suspicious.

What are LLP property schemes?

These tax avoidance arrangements have been heavily marketed to landlords over the past few years. The typical structure involves several steps that promoters claim will save substantial tax:

First, you set up a limited liability partnership and transfer your rental properties into it at market value. After a short period (often less than 12 months), the LLP is placed into members’ voluntary liquidation (MVL). The properties are then sold to a limited company that you or your family members own.

Promoters claim this clever structure allows you to transfer properties into a company without triggering capital gains tax, avoid stamp duty land tax on the transfers, achieve a tax-free uplift in your property’s base cost, and potentially claim business property relief for inheritance tax purposes.

Why HMRC says these schemes don’t work

HMRC has made its position crystal clear: these LLP property schemes are tax avoidance, and they’re ineffective. The government has introduced specific legislation to close down these arrangements, and landlords caught using them face serious consequences.

From 30 October 2024, new rules under Section 59AA of the Taxation of Chargeable Gains Act 1992 treat the transfer of properties into an LLP as a disposal for capital gains tax purposes. This means you’ll be liable for CGT on the difference between what you originally paid for the property and its market value when you contributed it to the LLP. The supposed tax-free transfer simply doesn’t exist.

For stamp duty land tax, HMRC applies anti-avoidance rules introduced in 2006 specifically to catch schemes designed to artificially reduce tax charges. Because these arrangements involve pre-arranged steps where properties ultimately end up in a company you control, HMRC calculates the SDLT as if you’d sold directly to the company. The special partnership rules that promoters rely on don’t apply.

Business property relief (BPR) for inheritance tax presents another problem. Most residential rental businesses are classified as investment activities rather than trading businesses. BPR doesn’t apply to investment businesses, regardless of how cleverly you structure the ownership through an LLP or company.

The real costs of using these schemes

If you’ve already implemented one of these arrangements or you’re considering doing so, you need to understand the financial risks. HMRC will pursue the full amount of tax you tried to avoid, plus interest calculated from the date the tax should have been paid. Penalties can be substantial, particularly if HMRC views your participation as deliberate tax avoidance.

The fees charged by scheme promoters are typically high, often running into thousands of pounds. You’ll also face professional fees for accountants and solicitors to help unwind the structure and deal with HMRC. If your case ends up at tribunal, legal costs can escalate quickly.

What if you’re already in one of these schemes

If you’ve transferred properties into an LLP structure as part of a tax avoidance scheme, HMRC strongly advises withdrawing from it immediately and settling your tax affairs. The earlier you come forward, the better your position will be.

Discuss your situation with your accountant who will advise how and when to contact HMRC to begin the disclosure process. They’ll guide you through what information they need and how to settle your tax position. Making a voluntary disclosure before HMRC discovers the arrangement through their own investigations can significantly reduce the penalties you’ll face.

Seek independent professional advice from an accountant who wasn’t involved in setting up the scheme. We regularly help clients who’ve been caught up in tax avoidance arrangements to unwind their position and minimise the damage.

Legitimate ways to structure your property business

Just because these LLP property schemes don’t work doesn’t mean there aren’t legitimate, tax-efficient ways to structure your property business. The key difference is ensuring any planning is based on sound commercial reasons and follows the letter and spirit of tax law.

Incorporation relief under Section 162 TCGA 1992 can genuinely defer capital gains tax when transferring a property business to a company, provided certain conditions are met. Your property business must be actively managed rather than passive investment, you must exchange properties for shares in the company, and the transfer must be of the business as a going concern.

Some landlords find that keeping properties in their own name but using a limited company for services like property management can provide tax benefits without the complexity and risk of full incorporation. Others explore legitimate partnership structures where family members are genuinely involved in the business.

The crucial point is that any tax planning should be discussed with a qualified accountant who can assess your specific circumstances and ensure you’re following a legitimate route, not a marketed avoidance scheme.

Warning signs of tax avoidance schemes

HMRC provides helpful guidance on spotting tax avoidance schemes before you get involved. If an arrangement sounds too good to be true, it probably is. Be particularly wary if the tax savings seem out of proportion to the commercial substance of what you’re doing.

Schemes involving artificial or contrived arrangements that serve little purpose beyond creating a tax advantage should ring alarm bells. If the structure seems unnecessarily complex given what you’re trying to achieve, that’s another red flag.

Secrecy or confidentiality agreements that prevent you discussing the arrangement with your usual accountant or advisers are a serious warning sign. Legitimate tax planning doesn’t require secrecy. Similarly, if upfront fees seem high or the arrangement is marketed on a no-win-no-fee basis, proceed with extreme caution.

Many schemes come with claims that they’ve been “vetted by top lawyers” or given scheme reference numbers by HMRC. Don’t be fooled – a scheme reference number simply means HMRC is aware of and investigating the arrangement. It definitely doesn’t mean HMRC approves of it.

Getting proper advice on your property business

Property tax can be complicated, especially with recent changes to mortgage interest relief and higher CGT rates on residential properties. It’s entirely understandable that landlords look for ways to reduce their tax bills legitimately.

At Adams Accountancy, we help property investors and landlords across Kent structure their businesses in tax-efficient ways that comply with HMRC rules. We can review your current arrangements, advise on legitimate incorporation options if appropriate, and ensure you’re claiming all available reliefs and allowances.

If you’ve been approached about an LLP property scheme or similar arrangement and want a second opinion, we’re happy to have a confidential chat about whether it’s legitimate planning or potential tax avoidance. Call us on 01322 250001 on complete our contact form for a call back. Remember, no question is too silly when it comes to protecting your property investment from unnecessary tax and penalties.

For more information about how we help property investors, or if you’re worried you might already be involved in a tax avoidance scheme, today for a free, no-obligation conversation. We’re here to help you stay on the right side of HMRC whilst ensuring you don’t pay more tax than necessary.

About the author

Michelle Adams is a chartered accountant and director at Adams Accountancy, a Kent-based practice specialising in helping small business owners and property investors with their accounts preparation, tax and compliance obligations. With over 15 years of experience, Michelle and her team provide practical, straightforward advice to clients across the region, making complex tax rules simple to understand. Adams Accountancy prides itself on creating a welcoming environment where no question is considered silly.

Frequently asked questions about LLP property schemes

What is HMRC Spotlight 69?

HMRC Spotlight 69 is an official warning published in April 2025 about tax avoidance schemes involving limited liability partnerships used by landlords to avoid capital gains tax. The Spotlight explains why these schemes don’t work and warns users they’ll face additional taxes, interest and penalties.

Do LLP property schemes actually work to avoid tax?

No, HMRC has made it clear these schemes don’t work as intended. New legislation introduced in Finance Act 2025 specifically targets these arrangements, deeming a disposal to occur when properties are transferred into an LLP, triggering the capital gains tax liability the scheme claimed to avoid.

What penalties will I face if I’ve used an LLP property scheme?

If you’ve used these schemes, you’ll owe the full amount of tax you tried to avoid, plus interest from when the tax should have been paid. HMRC will also impose penalties based on the severity of the avoidance, which can range from 30% to 100% of the unpaid tax for deliberate schemes.

Can I still use an LLP to hold my property portfolio legitimately?

LLPs can be legitimate structures for property businesses in certain circumstances, particularly for succession planning or profit sharing among family members. However, they cannot be used to artificially avoid tax through the liquidation schemes described in Spotlight 69. Always seek professional advice before setting up any structure.

What should I do if I’ve already set up one of these schemes?

Contact an accountant immediately for advice on how to make a voluntary disclosure to HMRC and settle your tax affairs. Making an early disclosure typically results in lower penalties than if HMRC discovers the arrangement themselves.