SDLT on hybrid LLP structures explained

An article I posted on LinkedIn on Boxing Day, about stamp duty land tax on hybrid LLP structures, had more engagement than I expected on a bank holiday when I did not expect many people to be concerned with the finer points of complicated tax rules.

The background is that section 24 of Finance (No. 2) Act 2015 altered the tax treatment of individual landlords of residential property; between 2017 and 2020 it phased out the ability of landlords to deduct finance costs in full from rents received. Instead, it provided a 20% basic rate deduction, irrespective of the landlord’s tax bracket.

Corporate landlords remained able to set interest off against rent in full, so there was a tax incentive to move properties from individual higher rate landlords to a company. One structure, called the hybrid LLP structure, involved legal title remaining with the individuals, but the beneficial interest in the properties passing to a Limited Liability Partnership (LLP) with a limited company as a member. Some of the income was then diverted through the LLP to the limited company.

The article addresses concerns among landlords who used the hybrid LLP structure marketed by Less Tax 4 Landlords and others for their let residential property portfolios. It looks at the potential SDLT consequences of the arrangements put in place, now that HMRC have said their general view is that the “letters of trust” had the effect of passing the beneficial interest in the properties to the LLP.

There are arguments to be made as to whether in individual cases HMRC are correct. But just how bad are the SDLT consequences otherwise? The LinkedIn article gives a worked example, which makes for sobering reading. It looks separately at:

(a) The SDLT due on the property first going into the LLP and the limited company becoming entitled to a share a profit share
(b) The SDLT later due, because of the LLP being a “property investment partnership”, every time there is a change in entitlement to the share of income profits

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