Elysium Law understands that Less Tax for Landlords and OCG Accountants have instructed Leading Counsel (KC) about the tax issues relating to income tax distribution, questions about which have been raised by various tax professionals concerning the hybrid LLP planning.
HMRC’s view (and that of every other tax expert) is that the planning does not work. HMRC’s views are set out in Spotlight 63. They can be seen here.
We have several observations:
Potential Conflict of Interest
We fail to understand why LT4L, Chris Bailey and OCG Accountants are continuing to advise clients who may have suffered loss as a result of the planning.
Our view is that clients who may have been affected require independent advice in evaluating their options, specifically tax advice and the possibility of bringing legal action against LT4L, Chris Bailey and/or OCG Accountants. Accordingly, ongoing representation represents a conflict of interest, and it cannot confidently be said that LT4L, OCG Accountants or Chris Bailey are in a position to advise their clients independently and objectively.
If you are a client of LT4L, Chris Bailey or OCG Accountants, our advice is that you seek urgent advice from a competent and respected tax professional, register following Spotlight 63, ascertain all or any tax liabilities and seek advice from legal professionals.
Is it only income tax that affects the clients in the planning?
The simple answer is no.
At this stage, we anticipate the potential liabilities are as follows:
- Income tax payments, including interest and penalties;
- Capital Gains Tax liabilities (potentially by clients who have sold property) – The transfer into an LLP does not give you a base cost uplift as advised by LT4L and Chris Bailey;
- Inheritance Tax – It is generally accepted that Business Property Relief cannot be claimed upon the death of the partners under this planning.
- SDLT – as changes in LLP profit sharing automatically trigger SDLT charges under FA 2003, Sch 15, para 14
Elysium Law has been approached by one client who informs us that he sold properties under the mistaken belief of a CGT uplift which is not available, and he had a revised CGT bill of £800,000. There MUST be others in this position.
Clients should be asking LT4L how their instructions to Counsel deal with this, as on the current information their clients have, they don’t appear to.
Can clients rely on Counsels’ advice – who are the clients for the purposes of the retainer?
Traditionally, it was a ‘selling point’ widely used by the tax avoidance scheme providers that ‘Leading Counsel’ had advised. Mostly these were eminent Counsel, with the providers themselves using these ‘names’ to give a form of comfort blanket to the participants who felt very secure knowing that Leading Counsel had advised.
The problem with this is that no matter who Counsel is or was, Counsel’s instructions and advice are governed by the retainer. Leading Counsel will very likely not be retained to advise you. Counsel will likely be retained to advise LT4L or any other of the named entities. In that case, there is no relationship between you as the end client and Counsel and as such his/her advice cannot be relied upon by you. Counsel, we believe, is instructed to advise LT4L and OCG Accountants and only has a duty of care towards them
An example of this is the recent case of McLean v Thornhill [2023] EWCA Civ 466, where it was held that a tax barrister advising the promoter of a tax avoidance scheme owed no duty of care to the tax avoiders who invested in it, even though they had been allowed to see his advice.
In those circumstances, if a client relies on the advice given by LT4L’s KC, and either in the event the advice is not correct, or HMRC does not agree with Counsel’s views, there is no recourse by their clients.
What if HMRC disagrees with Counsel’s views as put forward by LT4L?
If HMRC disagrees with Counsel’s views, the only answer is for you to litigate the matter with HMRC, and this will take considerable time (years) and very significant expense. It is not clear who will pay that expense and it is not at all clear that LT4L insurance will fund this litigation and pay any tax and penalties due to HMRC (as LT4L has informed clients).
The insurance provider will be acting via their solicitors (not via LT4L or any of their representatives) and will not simply ‘payout’ claims. The only way a recovery can be made is by bringing a claim against LT4L and their insurance provider in negligence and breach of contract.
In our further articles, we will demonstrate the effect that relying upon this advice will have on your ability to bring a claim against LT4L or any others who advised that this planning was reliable.
Have the criticisms of the overall planning been answered by LT4L?
The short answer is NO. The informed views namely that the planning does not work, have NEVER been contradicted by Chris Bailey or LT4L since the ineffectiveness of the planning was exposed, principally by Dan Neidle of Tax Policy Associates.
Limitation
There are time limits to bringing civil claims, including claims made against Insurance Companies. These are known as limitation periods. Once those limits have expired, you have no options open to you and your claims will be time-barred, no matter how well-founded.
You must obtain independent and objective legal advice within the limitation period. LT4L will have a complete defence to any claims brought against them once the limitation period has expired.
Conclusion
The deadline to register for Spotlight 63 is rapidly approaching. If you have been affected, you must obtain independent, objective tax advice now.
Furthermore, Elysium Law is still receiving enquiries from clients affected. You can contact us via telephone or email for a free initial consultation.
Elysium Law has an outstanding track record of bringing, defending, and settling high-value and complex cases. With a significant number of taxpayers who are likely to be affected following Spotlight 63, we are looking to advance a group claim. Contact us today for more information
