HMRC has raised the alert about a tax scheme being promoted to landlords as a way to structure their property businesses and reduce their tax bills.

The hybrid business model arrangement claims to bypass mortgage interest relief restrictions, allowing increased deductions for mortgage interest, and reduce the amount of tax payable on profits from their property business.

But this breaches tax rules and is high risk in HMRC’s view. ‘This scheme does not work. Landlords who use these arrangements could end up paying more tax than they tried to avoid, along with interest, penalties and high fees,’ stressed HMRC.

The schemes are intended to help landlords avoid tax by transferring their properties to a limited liability partnership (LLP) which has a corporate member. Profits are then distributed among members of the LLP at their discretion.