14:24 PM, 23rd August 2024, About 2 months ago 95
Text Size
When the letter from HMRC landed on my doormat, I barely gave it a second thought. It seemed like just another piece of bureaucratic correspondence. But as I unfolded the paper and scanned the contents, the words “compliance check” hit me like a punch to the gut. My casual indifference evaporated, replaced by a chilling realisation: I was facing a tax investigation.
My heart began to race, my mind spinning with anxiety, fear, and a growing sense of helplessness. HMRC was scrutinising the validity of a rolled-over relief I’d been assured was my right when my wife and I transferred our entire property investment business partnership to our own Limited Company in exchange for shares. We had done everything by the book, or so I believed. The idea that we could owe Capital Gains Tax when we hadn’t pocketed a single extra penny seemed absurd. Property118 had explained that this particular relief would defer any CGT until we eventually sold our shares, and we had double-checked this with our accountants. We even held a meeting with them and Property118 to thoroughly analyse the legislation, case law, and HMRC manuals. We moved forward with confidence, convinced that everything was airtight.
But as I reread the letter, doubt began to creep in. What if HMRC disagreed?
We responded swiftly, providing all the information HMRC requested. Yet, weeks turned into months with no reply. The silence was deafening, each day amplifying our fears. My wife and I started exploring worst-case scenarios: How much CGT would we owe if HMRC denied the relief? What would it take to appeal such a decision? How much time, money, and emotional energy would that consume?
The mental strain was relentless. It’s hard to describe the cloud of dread that looms over you when your financial future hangs in the balance, and yet, for HMRC, this was just another day at the office. The letters kept arriving, each one demanding more documentation—tenancy agreements, property valuations, mortgage details, contracts, full accounts, mortgage statements, bank statements. The list seemed endless. HMRC even wanted to know the minutiae of how we ran our business: how much time we dedicated to it, why we used agents to find tenants, what services those agents provided, and which contractors we employed and why.
It felt like we were trapped in a never-ending nightmare.
Our only comfort came from the unwavering support of Property118, our accountants, and our barristers. They were patient, thorough, and consistently reassuring. But despite their confidence, we couldn’t shake the nagging fear that this might end in disaster—a Capital Gains Tax bill so enormous it would force us to dismantle the business we had spent decades building.
It was as if we were on trial for a crime we didn’t even know we could commit. What if we had made a mistake? How could we live with that? Would we be able to face our friends and family? The shame and guilt of being duped, of having put our trust in professionals only to have it backfire, weighed heavily on our minds.
HMRC also seemed fixated on why we decided to incorporate our rental property business. It’s only now that I realise they might have suspected we were exploiting a loophole to avoid taxation. But that wasn’t our motivation. As business owners, we have a duty to structure our affairs in the most efficient way possible, not just for tax purposes, but for the future of our business and our family. We had always hoped that our children would take over the business when we retired, continuing our legacy for generations. That’s the advantage of a Limited Company structure, even though it wasn’t something we considered when we started out decades ago. Back then, when Buy-To-Let was a novel investment strategy, Limited Company Buy-To-Let mortgages were scarce and prohibitively expensive. That’s why we initially built the business in our own names.
But times changed. By 2015, it made far more sense to operate within a Limited Company structure. The commercial benefits were clear, and the trend had shifted as Buy-To-Let financing became more risk-based. We adapted, but now, it felt like that decision was under siege.
Then, one day, our accountant emailed us with the subject line: “Closure Notice from HMRC.” My stomach dropped. Did this mean we were in the clear, or was this just the prelude to a crushing tax demand?
It took us a few minutes to muster the courage to call our accountant. I made the call, but my wife sat beside me, clutching my hand, her face pale with anxiety. This was the moment we had been dreading, the moment that could change our lives forever.
“Have you read the letter from HMRC attached to my email?” our accountant asked. We hadn’t even noticed it in our haste to seek answers. We apologised and asked him to explain it in layman’s terms.
“HMRC has accepted that you’re entitled to the reliefs,” he said calmly. “Your tax returns don’t need to be amended, and you don’t have any further tax to pay.”
Relief flooded over me like a tidal wave. I jumped out of my chair and punched the air, shouting with joy as if England had just won the World Cup. My wife broke down in tears, sobbing with a mixture of relief and exhaustion. The nightmare was finally over.
Since that day, both I and my accountant have sung the praises of Property118 to every landlord we know. Their expertise, their guidance—it had all been vindicated.
But then, in September 2023, I came across articles by Dan Neidle, accusing Property118 of promoting an abusive tax avoidance scheme. I was stunned. At first, I thought it would be quickly resolved, but I was wrong.
Within days, Neidle reported that HMRC had opened an investigation into Property118. Suddenly, it seemed like everyone—lawyers, tax advisers, the media—was piling on, branding Property118 as a scam run by crooks. How could this be happening after everything I’d been through?
The messages from people I’d shared my experiences with started pouring in. “Have you heard about the investigation into Property118?” they would ask. “Sounds dodgy to me,” they’d say. “You must be worried.”
Initially, I wasn’t worried. But now, those same dark thoughts are creeping back into my mind. Can HMRC reverse a closure notice? Could they really change the rules after the fact? Where’s the justice in that? If not, why are they targeting Property118?
The only explanation that makes any sense is that HMRC panicked, buckling under the immense negative media pressure aimed solely at Property118—my advisers, who had stood by me every step of the way!
To my knowledge, no other companies offering similar services have been accused of failing to disclose a disclosable tax avoidance scheme for recommending incorporation. Nor have they received Stop Notices from HMRC.
My frustration has now turned into anger. How can the opinion of one man lead to such drastic consequences? Why should every client that Property118 assisted now endure the same anxiety I once did?
Perhaps Mr. Neidle’s legal analysis isn’t flawed. But if that’s the case, why was the HMRC investigation into my business closed? I can only conclude that either my incorporation was entirely legitimate, as HMRC agreed, or that HMRC’s handling of my investigation and the 20+ other investigations into Property118 clients were all deeply incompetent, exposing countless landlords to unnecessary risk in the years that have since passed. I can’t believe for a second that the latter is true, so what does HMRC hope to get from further investigations? Does it hope to prove that it has previously been grossly incompetent in its handling of 20+ investigations, by concluding that everything had been done correctly and the correct reliefs had been claimed?
Please forgive me for choosing to share these thoughts anonymously – I trust you will understand my reasoning.
patricia sander
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up10:26 AM, 24th August 2024, About 2 months ago
Speaking with an Estate Agent yesterday in SW London, she told me landlords are selling up in droves (including me!). The animosity from the likes of DN and government interference make it impossible. The shortage of property to rent has driven the price up to unsustainable levels for tenants. My daughter is looking to rent in SE London and it's completely unaffordable. There is no winner here.
GAMESEND.
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up10:37 AM, 24th August 2024, About 2 months ago
100% i can see the unfairness, i am exiting the sector personally.
I was contacted at the time about this scheme and not really having enough properties it did not really fit verses the cost of setting it up i think was around 18k. However i took it to my accountant to look at just to see what he thought. His words "if you was famous you would be deemed as an aggressive tax avoider" The margin of error was so close to the wire to be deemed as a safe way of not paying/declaring tax. Hence i never did sign up in the end. I hope for all those involved you win your case but with the climate set against Landlords it is going to be an uphill task.
reader
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up9:25 AM, 25th August 2024, About 2 months ago
It is sad to read, as so many useful steps have been achieved by 118, yet HMRC have closed them down for now at least. Ever since GAAR nothing is certain in the tax world, planning can therefore be a nightmare. The only certain thing that is left now is death and steps to plan for our own demise are now under threat.
Hopefully 118 will succeed.
GlanACC
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up11:04 AM, 27th August 2024, About 2 months ago
I had an IR35 investigation Done by HMRC many years ago. I was working in Germany for an agency contracted to IBM. HMRC wanted a copy of the contract between the agency and IBM (well They weren't going to get that !) so they had the contract between me and the agency. They complained it was in German and asked me to get it translated which I refused to do. They took it away and 6 months passed before they came back and said they could not get it translated as they has no budget for that. Instead they concentrated on my consulting work in the UK and concluded that I owed nearly £700 in tax but it wasn't worth collecting as the cost of raising the paperwork and time would exceed the £700 - So much for tax investigations
Dennis Leverett
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up13:12 PM, 27th August 2024, About 2 months ago
I think this explains very accurately a certain personality of someone we all know of. A desperate "has been" I would say.
"Narcissistic personality disorder is a mental health condition in which people have an unreasonably high sense of their own importance. They need and seek too much attention and want people to admire them. People with this disorder may lack the ability to understand or care about the feelings of others. But behind this mask of extreme confidence, they are not sure of their self-worth and are easily upset by the slightest criticism.
A narcissistic personality disorder causes problems in many areas of life, such as relationships, work, school or financial matters. People with narcissistic personality disorder may be generally unhappy and disappointed when they're not given the special favours or admiration that they believe they deserve. They may find their relationships troubled and unfulfilling, and other people may not enjoy being around them."
Many moons ago I had a tax and vat investigation started by an envious neighbour, let slip during investigation, nothing on the scale of this but still months of stress and worry. Ended getting a small tax refund as a result and being commended on my very organised accounts.
My last rental, nice 3 bed detached, is for sale in immaculate condition and empty at a good price but only had one viewing in 3 months. Must sell before possible 46% capital gains tax.
Ryan Stevens
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up14:34 PM, 27th August 2024, About 2 months ago
Reply to the comment left by JB at 24/08/2024 - 10:12
What caused them to backtrack? HMRC generally only acts on limited information and on the whole its employees are not particularly well trained, especially for complex cases. If they are any good they are poached by accountancy firms, so the pool of high quality, well trained staff is small.
Previous enquiries may have been closed due to lack of understanding of the full facts. Dan Neidle's article has probably highlighted other areas that HMRC was not previously aware of, or had not understood.
A simple transfer of partnership property rental business to a limited company may well be fine, if there is a genuine business. What probably tends to muddy the water is where there are loans that remain in the names of individuals or couples after the transfer to a company, or where very short term bridging loans have been used. These may well be issues that HMRC had not previously been aware of/understood. Even then, they may or may not be critical in determining whether the transfers work in terms of deferring CGT and mitigating SDLT. Tax is complicated, and every case will be decided on its merits and facts.
GlanACC
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up16:26 PM, 27th August 2024, About 2 months ago
Reply to the comment left by Ryan Stevens at 27/08/2024 - 14:34
There is no such thing as a 'simple' transfer of property from a partnership to a LTD company. I have 2 properties with my wife in a partnership all paid for and no loans. 'simpler' may be the conclusion but too expensive to do
Ryan Stevens
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up16:33 PM, 27th August 2024, About 2 months ago
Reply to the comment left by GlanACC at 27/08/2024 - 16:26
I agree, there is no such thing as simple with transfers from partnerships to limited companies, but there are 'simpler' versions with no loans on the properties, a genuine case for there being a property business, etc.
P118's version appealed mainly to those who wanted to have their cake and eat it i.e. transfer the properties, but continue to benefit from personal mortgages that tend to have a lower interest rate than that available to companies, especially when fixed at historical rates.
Beaver
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up16:44 PM, 27th August 2024, About 2 months ago
Reply to the comment left by Ryan Stevens at 27/08/2024 - 14:34
I have found the reports on property118 about this story confusing, partly because I'm a small portfolio landlord and I know that at present incorporation is not an option for me. As far as I can see it is possible to transfer an unincorporated business to a limited company and claim rollover relief if it genuinely is a business e.g. you manage the business yourself and spend a significant amount of time doing it.
https://www.gov.uk/government/publications/incorporation-relief-hs276-self-assessment-helpsheet/hs276-incorporation-relief-2021-roll-over-relief-on-transfer-of-a-business#:~:text=The%20relief%20is%20given%20automatically,disposal%20of%20the%20old%20assets.
The only online information I can see concerning the HMRC investigation concerns whether there is any stamp duty payable on the transfer of residential property to a limited company.
GlanACC
Become a Member
If you login or become a member you can view this members profile, comments, posts and send them messages!
Sign Up16:50 PM, 27th August 2024, About 2 months ago
Reply to the comment left by Beaver at 27/08/2024 - 16:44
Yes, this is true BUT probably for the majority of partnerships the only have one two or three properties (I have 2) and I couldn't demonstrate I use a significant amount of time on them (maybe 2 hours a week !). So I would have CGT and 3% extra stamp duty to put them in my LTD company (which now has 4 properties - used to have 16) so just to transfer in the properties would cost me in excess of £16K per property - just not worth it. I am exploring other avenues like trusts (seeing solicitor next week but I assume there are the same issues there)