Landlords Face Hefty Tax Bills After HMRC Targets Property Forum Schemes
HMRC labels Property118's tax plans as avoidance schemes, potentially affecting hundreds of landlords. Experts warn of six-figure liabilities for large portfolio owners as investigations date back to 2017.
A popular property forum's tax avoidance schemes have come under scrutiny, potentially leaving hundreds of landlords facing substantial tax bills. HM Revenue and Customs (HMRC) has recently classified two plans offered by Property118 as tax avoidance schemes, sparking concern among buy-to-let property owners.
Property118, established by Mark Alexander, marketed these plans to landlords, promising to help them avoid various taxes, including capital gains tax and stamp duty. The company charged fees of up to tens of thousands of pounds for these services, with one landlord reportedly paying £50,000 for a £4m portfolio.
On September 19, 2024, HMRC officially designated two of Property118's plans - the Substantial Incorporation Structure (SIS) and Capital Account Restructure (CAR) - as tax avoidance schemes. This decision has led to some users already receiving backdated tax bills.
The popularity of these schemes surged in 2017 following the introduction of Section 24, which restricted landlords' tax relief on mortgage interest. This change prompted many property investors to seek alternative tax-saving methods. The UK's complex tax system, with over 17,000 pages of code, has often led to the creation of such schemes.
Dan Neidle of Tax Policy Associates, who exposed these schemes in September 2023, estimates that up to 1,000 landlords may have utilized Property118's services. He criticized HMRC for not being more proactive, stating, "There have been murmurings about these schemes in the profession for a long time."
Experts warn that landlords with large portfolios could face six-figure tax liabilities. In March 2024, one client reportedly received a £666,000 "discovery assessment" for unpaid capital gains tax. This situation highlights the risks associated with tax avoidance schemes in the UK's property market, which was valued at approximately £7.3 trillion in 2021.
Property118 claims its SIS plan allowed landlords to transfer properties into a company without incurring capital gains tax or stamp duty. However, legal experts caution about potential risks, including mortgage defaults and tax complications.
"By putting their property into a company without telling the bank, in principle they could default on the mortgage. On top of that, it's a structure that carries a number of tax risks."
Property118 is contesting HMRC's decision and has raised over £285,000 from 270 supporters through a JustGiving campaign to cover legal and business costs. The company maintains that HMRC's labeling misrepresents the commercial motivations behind the schemes' use.
As investigations continue, affected landlords are advised to seek professional guidance. With the UK's private rented sector accounting for 4.4 million households in England as of 2021, the outcome of this case could have far-reaching implications for the buy-to-let market.
