At Antony Batty & Company, we are seeing increasing concern around aggressive property tax schemes marketed to landlords, particularly those operating through limited companies. These schemes promise significant tax savings but are now attracting scrutiny from HMRC.
Although these arrangements often involve companies and trusts, HMRC’s tax assessments initially fall on the individual landlords themselves. Company insolvency is therefore often a secondary consequence, arising from funding pressure rather than being the direct subject of the tax assessment.
This article outlines the risks from an insolvency practitioner’s perspective, and we are grateful to Matthew Spencer, Client Director at Imperium Tax and Accounting Ltd for his help in writing this article.
We are not tax advisers, but we are often the ones called in when the consequences of those directors caught up in such schemes become unmanageable because they are unable to pay the tax, funding pressure grows and company insolvency looms.
What are these Aggressive Property Tax Schemes?
Two structures have come under particular scrutiny:
This scheme involves transferring property into a company via a trust arrangement. It claims to avoid Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT), while allowing mortgage interest relief to be retained.
However, legal analysis has identified serious flaws:
- The trust deed often contains clauses that invalidate a bare trust, triggering CGT at the point of transfer.
- The indemnity and loan structure used to justify mortgage interest relief are highly vulnerable to challenge.
- HMRC believes the scheme should have been disclosed under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. It was not.
Thousands of landlords are now facing retrospective tax demands.
This scheme uses a Limited Liability Partnership (LLP) with a corporate member to divert profits and claim reliefs across income tax, CGT, SDLT, and Inheritance Tax.
Key issues include:
- Mortgage default risk due to trust declarations made without lender consent.
- Misapplication of Business Property Relief (BPR) for Inheritance Tax.
- Incorrect assumptions about CGT rebasing and SDLT exemptions.
- HMRC has challenged the scheme and believes it should have been disclosed under a Disclosure of Tax Avoidance Scheme( DOTAS.
Prominent tax lawyer Dan Niedle and his thinktank Tax Policy Associates have written on both of these cases, the relevant articles are below:
- What’s worse than a tax avoidance scheme? A badly implemented tax avoidance scheme.
- Less Tax for Landlords: the £50m landlord tax avoidance scheme that HMRC say doesn’t work, and can trigger a mortgage default.
Why this matters to Insolvency Practitioners
These aggressive property tax schemes are not just technical tax failures. They are creating real financial pressure for companies, especially those with multiple properties and high leverage.
Tax demands can tip the balance
When HMRC issues a retrospective tax demand, it often includes:
- The original tax liability
- Interest
- Penalties
- Potential personal liability for directors
For companies operating on tight margins, this can be the difference between survival and insolvency.
Asset ownership is compromised
Trust-based schemes can distort beneficial ownership. In liquidation, this creates complications:
- Who owns the property?
- Is it subject to trust law or company law?
- Can it be realised for the benefit of creditors?
These questions delay asset recovery and increase costs.
Director conduct comes under scrutiny
If a director entered into a tax scheme without proper advice or failed to disclose it, and their company then enters insolvency, they may face:
- Misfeasance claims
- Personal liability under the Insolvency Act
- Director Disqualification proceedings
We have seen cases where directors relied on templated documents and promotional material, believing the scheme was legitimate. When the promoter disappears, the director is left to answer for the consequences.
What should directors and advisers do?
To reiterate, we are not tax advisers, but we do advise caution when schemes promise:
- Tax-free incorporation
- Mortgage interest relief without lender consent
- CGT or SDLT avoidance via trust or LLP structures
Matthew Spencer notes:
“I have a great deal of sympathy for landlords caught up in these schemes. Many went into them in good faith, against a backdrop of a worsening property tax landscape and a sense that they had to do something.
Unfortunately, bad actors latched onto that vulnerability who promised tax advantages that were deeply flawed. The reality is simple: if tax planning were that easy, everyone would be doing it and if something sounds too good to be true, it almost always is.”
Early advice is critical
If your client’s company has entered such a scheme and is now facing HMRC pressure, and insolvency is looming, early engagement with a licensed insolvency practitioner can:
- Assess viability
- Protect value
- Advise on director exposure
- Explore restructuring options
Waiting until HMRC enforcement action and/or an investigation by the Insolvency Service begins limits the options available.
A note on promoter risk
HMRC is increasingly targeting scheme promoters. In some cases, penalties of up to £1 million have been proposed. But when promoters vanish or cease trading, the liability often falls back on the client company and its directors.
We have seen this pattern before. It is not unique to property tax schemes. But the scale and complexity of these arrangements make the fallout particularly severe.
Talk to us early for help if affected by Aggressive Property Tax Schemes
At Antony Batty & Company, we specialise in helping companies navigate financial distress. Aggressive property tax schemes are now a growing source of such distress. We urge directors and advisers to treat these arrangements with caution and seek professional tax advice before the situation escalates.
If your company has participated in an aggresive property tax scheme – or you are concerned about a client company that may be affected – and corporate insolvency is looming, please contact us for a free of charge confidential initial discussion. The earlier we are involved, the more we can help.
