HMRC landlord tax loophole crackdown as Britons warned avoidance schemes 'do not work'

Joe Sledge
Wed, 29 Apr 2026 16:13:20 +0000

HM Revenue and Customs (HMRC) has launched a crackdown on buy‑to‑let investors using limited liability partnerships to reduce their tax bills.

The tax authority issued guidance stating that schemes designed to bypass mortgage‑interest relief restrictions and minimise property‑income tax liabilities do not operate as claimed.

Landlords who have entered into these arrangements could now face fines, interest charges and higher tax demands.

HMRC said it will apply anti‑avoidance rules to ensure rental income remains taxable in the hands of the original owner.

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A spokesman said: “Our view is clear – these arrangements simply do not work and can leave users facing higher tax bills, interest and penalties.”

The schemes gained popularity after changes introduced by former chancellor George Osborne in 2015, which restricted mortgage‑interest tax relief for landlords to the basic rate.

The policy increased tax liabilities for investors with larger property portfolios, prompting accountancy firms and promoters to market LLP‑based structures as a workaround.

HMRC has now urged landlords currently using such arrangements to withdraw from them.

Previous reporting indicated around 400 buy‑to‑let investors could face tax bills reaching six figures as a result of participating in these schemes.

While LLPs can be used legitimately in certain circumstances, HMRC is targeting structures created primarily for tax avoidance, including those where profits are allocated to corporate members to reduce overall tax exposure.

Michelle Denny‑West said: “The tax landscape for landlords has become so onerous and expensive that landlords are looking for loopholes to reduce their exposure.”

She added that most participants believe the schemes are legitimate, but “HMRC knows that the genuine economic ownership doesn’t change – they’re going to tax you as an individual.

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"Quite often, high fees are paid to promoters, and in the end the taxpayer suffers.”

Ben Proctor said: “Unfortunately there seems to be a ready market for people who can be persuaded to dodge tax.

"Promoters take high fees, then dodge responsibility by disappearing into the ether – it’s a fraudulent system that works.”

He said affected landlords can face significant additional costs once HMRC challenges the arrangements, with interest charges and penalties increasing liabilities, particularly where cases take time to resolve.

The structure, sometimes described as a hybrid model, typically involves transferring property interests into an LLP, then adding a limited company as a corporate member to receive profits.

Promoters claim this allows income to be taxed under corporation‑tax rates rather than higher personal income‑tax bands, and that finance costs such as mortgage interest can be deducted within the corporate structure.

HMRC has made clear it will challenge these claims using existing anti‑avoidance legislation, attributing income based on underlying economic ownership rather than the structure used.

Promoters of such schemes may also face enforcement action.

Those selling tax‑avoidance arrangements are required to disclose them to HMRC, with failure to do so carrying penalties of up to £1million.

Late disclosure beyond five days can trigger additional daily fines starting at £600.