The incorporation of properties seem to follow two basic steps at the moment. For capital gains tax the question about whether you can defer your capital gains tax is about how busy you are. If you have a larger oircfolio and self manage every aspect then there is a chance you will be.
The next key step is on SDLT and the need to go via a partnership to avoid an SDLT charge on the total value of your portfolio. So what does that mean. Well for many it just means registering a partnership with HMRC and submit any joint property income on there for a few years. Is it that simple though? Probably not.
HMRC’s guidance repeats a few times in the opener to PIM1030:
That’s a pretty strong opener! So the joint letting of property does not make a partnership. We also know from yesterday that submitting a partnership return for many years does not mean that HMRC agree you have a partnership. It just means they have not looked at your return.
So what does PIM1030 go on to say? What do you need to do?
“Significant additional services in return for payment” – I have not met anyone yet with joint property income that provides single other service never mind additional. Remember this exclude the rental so anything to do with managing or maintaining the properties is not what they are getting at here.
How then can you be sure to have a partnership? Well you need to use a Limited Liability Partnership (LLP). These are specifically, by law, partnerships due to the way they are constituted. An LLP can do anything or nothing and it will always be a partnership which is why they are popular among property people.
I should add for completeness that PIM1030 does acknowledge that “rarely” you will get a pure property partnership but does not go on to say when or what needs to exist for that to be the case. As they are pretty clear about not being a partnership if all you have is joint rental though it is worth spending the extra money on advice to go down the LLP route if you want to be sure.
Can’t we just pretend?
Finally I would just pop this in here from my own professional body the Chartered Institute of Taxation.
In talking about rules for members it states that we “should take care not to be associated with the presentation of facts they know or believe to be incorrect or misleading, and not to assert tax positions in a tax filing which they consider to have no sustainable basis.”
This means that if you are advised by someone regulated (accountants have a similar rules in their guidance) the person advising should be comfortable in setting out in detail why they believe you are one of the rare examples of a pure property partnership. If they don’t then maybe they are just blagging it and blagging is never a good basis for tax advice…