On 23 April 2025, HMRC published Spotlight 69, drawing attention to arrangements involving the liquidation of Limited Liability Partnerships (LLPs) aimed at avoiding Capital Gains Tax (CGT) liabilities.

How the Schemes Operate

Typically, the arrangements involve the following sequence:

  • An individual or individuals transfer an existing rental property business into an LLP at market value.
  • The LLP is subsequently placed into Members' Voluntary Liquidation (MVL).
  • As part of the liquidation process, the assets of the LLP are transferred to a new limited company owned by the same individuals.

Promoters claim that these steps allow the properties to be transferred into a corporate structure without triggering immediate CGT charges and without relying on incorporation relief under TCGA 1992 s.162.

HMRC's Position

HMRC states unequivocally that these schemes do not achieve the tax outcomes claimed. Specifically:

  • Chargeable Gains Arise: HMRC considers that the transfer of assets into the LLP at market value constitutes a disposal for CGT purposes, crystallising a gain at that point.
  • Application of Section 75A FA 2003: HMRC may apply section 75A (the SDLT anti-avoidance rule) to counteract any SDLT advantage obtained through the sequence of transfers involving partnerships and companies.
  • Business Property Relief (BPR) Not Available: HMRC highlights that rental businesses generally do not qualify for BPR under Inheritance Tax legislation, even if the asset-holding structure is altered.
  • General Anti-Abuse Rule (GAAR): Use of such schemes may fall within the scope of the GAAR, with potential exposure to the GAAR penalty where applicable.

Action Required

Taxpayers who have implemented or are considering implementing these arrangements are advised by HMRC to withdraw from the schemes and settle any outstanding liabilities. HMRC confirms it will pursue any unpaid tax, interest, and penalties where these arrangements have been used.

Promoters may also be subject to disclosure obligations under the Disclosure of Tax Avoidance Schemes (DOTAS) rules.

Full details can be found on HMRC’s website at: Spotlight 69 – Liquidation of a Limited Liability Partnership used to avoid CGT.