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CGT Rebasing – Why Less Tax For Landlord’s Planning Doesn’t Work

Posted: 06 Feb 2024
David Brogelli
Finance and Practice Manager, Paralegal
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Elysium Law has posted several articles on this issue in recent weeks. Since HMRC’s Spotlight 63, we have been continuously approached by landlords who have entered into the planning with LT4L, Chris Bailey or the Bailey Group and they are concerned as to what the best course of action to take is.

At this point, it is probably wise to step back and look at the planning itself and why HMRC says it doesn’t work.

We will break down the key aspects of the planning and the claimed advantages of using it as well as providing HMRC’s view and our opinion of that.

The Structure

By now, especially as you may have used the planning, you will likely be familiar with the structure of the planning. Simply put:

  1. The Landlord (and/or family members) set up a Limited Company and an LLP with the Limited Company as a Corporate member of the LLP.
  2. The Landlord transfers their properties into the LLP and then the Landlord as an individual member of the LLP allocates profits to themselves remaining basic rate taxpayers, excess profits are then allocated to the Limited Company.
  3. The Corporate Member then claims a deduction for finance costs.

The Claimed CGT Advantages

LT4L and Chris Bailey claim that the planning results in a Base Cost Uplift to for Capital Gains Purposes to the date of transfer to the LLP

This means that when you come to sell the property, the Capital Gain is calculated on the value when the property was transferred into the LLP, which ordinarily will be higher than when you originally purchased it. The claim is therefore that this will result in a lower gain and consequently lower CGT being paid.

Our view is that LT4L’s planning is based on a total misconception that Incorporation Relief applies in this instance.

Our Analysis

If on the transfer into the LLP an element of Capital is transferred to the Company, then this element would be rebased for the Company, but that would also trigger an immediate CGT charge to the Client. Any disposal of a property from the LLP is treated as transparent and therefore the Client’s base cost is used to calculate CGT. HMRC explains this in example 2 here, which is taken from their Capital Gains Manual.

It is claimed by the scheme promotors that the Incorporation Relief rules apply here. To clarify HMRC states regarding Incorporation Relief:

“you may be able to delay paying Capital Gains Tax if you transfer your business to a company in return for shares”


The fundamental flaw here is that you are not transferring your business to a COMPANY in exchange for SHARES, you are transferring it to an LLP – under a Trust arrangement, an entity which does not have shares.

The following questions regarding CGT rebasing were put to Chris Bailey by a trusted colleague of ours.

Trusted Advisor: “You advised that on the transfer into the LLP the properties would be rebased for CGT purposes. I questioned this and although I appreciate that they would be recorded in the LLP accounts at fair market value, on a disposal of a property the LLP would be treated as transparent and as such CLIENT’s base cost would be used for the purposes of the CGT calculation. You advised that this wouldn’t be the case and that he would only be subject to CGT on any growth from the date of contribution into the LLP. I can see that on the transfer into the LLP if an element of capital is transferred to the Company then this would rebase that element for the benefit of the company, but it would also trigger CGT on CLIENT’s disposal to the company. So, on the basis that no CGT is triggered on the transfer into the LLP, I assume that all capital is retained by CLIENT. This is demonstrated in HMRC example 2 on the attached: where it demonstrates that the base cost for the disposal is the original base cost (not the uplifted market value).” (Trusted Advisor)

Chris Bailey: “An LLP is an incorporated partnership and as such the incorporation relief rules can be applied”.

Trusted Advisor: “How can incorporation relief apply to an LLP? Incorporation relief requires a person to transfer a business to a company in exchange for shares. The LLP is a corporate body, but it is not a company and cannot issue shares so I can’t see how this could apply or the impact it would have on CLIENT’ CGT base cost. Please can you clarify?”

Chris Bailey: “The LLP’s capital account is increased by the level of the equity. The same rules apply as in a company environment, in that if the LLP is closed down then the CGT would become payable – just as in a company environment.”

As you can see, the question remains unanswered.

Elysium Law has spoken to multiple individuals who used this planning and subsequently received a revised and unexpected CGT calculation from HMRC on the basis of the original value of the properties, not their rebased value as claimed by Chris Bailey.

This of course has resulted in a very large tax charge and had the individuals been aware, it would certainly have affected their decision to sell the properties.


Despite LT4L and Chris Bailey’s claims that there is a CGT Base Cost Uplift, Elysium Law has now been approached by numerous clients who have now had to pay CGT from the date of purchase of the assets, not the uplifted value.

We have seen no advice from Chris Bailey or LT4L as to what they should do, and our view is that they have a claim in professional negligence. Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases.

Contact us today for more information if you have been affected.

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