What's Happening?
Property118, a consultancy for landlords, is advising against the use of s162 incorporation for landlords with mortgages due to an ongoing dispute with HMRC. The issue centers around the use of indemnities for existing mortgage liabilities, which HMRC has
classified as a discloseable tax avoidance scheme. This classification contradicts HMRC's own guidance, leading Property118 to challenge the decision in the First Tier Tribunal. The tribunal's outcome is pending, but the case highlights the complexities and potential risks involved in incorporating property businesses under current tax laws.
Why It's Important?
This development is crucial for landlords considering incorporation as a strategy to manage their property portfolios. The dispute with HMRC introduces uncertainty and potential financial risks, as landlords could face significant tax liabilities if the tribunal rules in favor of HMRC. The case underscores the importance of understanding tax implications and the need for clear guidance from tax authorities. It also highlights the broader issue of tax policy and its impact on the property market, which could influence investment decisions and market dynamics.
What's Next?
The First Tier Tribunal is expected to make a ruling later this year, which could set a precedent for how similar cases are handled in the future. Depending on the outcome, either party may appeal, potentially prolonging the uncertainty. Landlords are advised to seek professional advice and consider alternative strategies until there is clarity on the legal standing of s162 incorporation. The case may also prompt HMRC to review and possibly revise its guidance on property business incorporation, affecting future tax planning for landlords.
