HMRC Renews Warning on Landlord Tax Avoidance Schemes

Tax Queen

Tax Expert @ Pie

3 min read

HMRC has flagged three marketed tax schemes aimed at landlords as ineffective. The warning applies to UK landlords using or considering LLP or limited company structures to reduce their tax bill, and it applies across the UK property market. HMRC has issued these warnings, known as Spotlights, since 2023, with the latest update published in July 2026.

What HMRC Has Said

HMRC's position, restated in its most recent guidance, is blunt: these schemes "do not work as claimed." The warning covers three related arrangements, known as Spotlight 63, Spotlight 63A and Spotlight 69, all of which use LLPs and connected limited companies to try to cut income tax, Capital Gains Tax, Stamp Duty Land Tax and Inheritance Tax on rental property.

HMRC says it now receives significantly more third-party, real-time information than in previous years, and it is using this data to identify landlords who have entered into these arrangements and target them for compliance checks.

Being named in a Spotlight is HMRC's way of putting a scheme on public record before it starts opening enquiries into the people using it, so this update is effectively an early warning shot for anyone currently using, or being pitched, one of these three structures.

Why the Timing Matters

This renewed warning lands against a backdrop of wider tax pressure on landlords. Mortgage interest relief has been capped at 20% for several years, income tax rates on rental income are set to rise by two percentage points across all bands from April 2027, and both Stamp Duty Land Tax investigations have surged alongside Capital Gains Tax increases.

That squeeze has fuelled demand for schemes promising to soften the impact, which is part of why HMRC keeps returning to the subject.

HMRC's scrutiny of LLP structures isn't limited to landlords either. The tax authority has also been pursuing wider action against LLP arrangements more broadly in 2026, underlining that partnership structures used to reduce tax liabilities are firmly on HMRC's radar this year, not just a passing concern.

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The Three Schemes Under Scrutiny

Spotlight 63

Spotlight 63 covers hybrid LLP structures, where a landlord transfers property into an LLP alongside a corporate member, then allocates most of the profit to that company. This is designed to sidestep the 20% cap on mortgage interest relief that applies to individual landlords, since the corporate member can claim finance costs in full.

HMRC says mixed membership partnership rules catch this kind of disproportionate profit allocation, meaning the scheme fails in practice. Landlords weighing up whether to restructure into a limited company should understand how corporation tax genuinely applies before making that move.

Spotlight 63A

Spotlight 63A is a variant of the same structure. Instead of a straightforward profit reallocation, the corporate member takes on the landlord's mortgage liabilities through an indemnity, which is then presented as a capital contribution to justify the profit split.

HMRC's position is that indemnities are not genuine capital contributions, so this version does not work either.

Spotlight 69

Spotlight 69 goes further still. Property is transferred into an LLP at market value, the LLP is then wound up through a Members' Voluntary Liquidation, and the assets pass into a connected limited company.

The aim is to avoid Capital Gains Tax and Stamp Duty Land Tax on the transfer, while also claiming Inheritance Tax relief through Business Property Relief.

RC closed off much of this route with legislation effective from 30 October 2024 (Section 59AA of the Taxation of Chargeable Gains Act 1992), which treats the transfer into the LLP as an immediate disposal. That means Capital Gains Tax is triggered at that point regardless of the later liquidation steps

The Financial Risk of Getting It Wrong

HMRC is explicit about the consequences for landlords who have already used one of these schemes.

Beyond repaying the original tax that was avoided, landlords face interest on the unpaid amount, penalties of up to 100% of the tax owed, and the loss of any professional fees already paid to the scheme's promoter, none of which is recoverable.

For landlords weighing up whether an existing arrangement is worth unwinding, that combination of costs is usually the deciding factor

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What Landlords Should Do Next

If you're currently using one of these structures, or have been approached about one, HMRC's advice is to seek independent, bespoke tax planning rather than relying on a mass-marketed scheme.

It's also worth reviewing your ordinary landlord filing responsibilities to make sure nothing else has slipped, and checking that your rental income tax position is accurate before HMRC reviews it for you.

Acting now, while HMRC's compliance checks are still ramping up, is likely to be far less costly than waiting for a letter to arrive

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How Pie Tax Can Help

Filing correctly from the outset is the simplest way to stay off HMRC's radar, whether that means avoiding a marketed scheme altogether or simply getting your everyday rental income right.

As a self assessment taxation app built for sole traders, freelancers and landlords alike, Pie Tax takes the guesswork out of your yearly filing so you're never relying on a promoter's promises to keep your tax bill down.

Take a look at why landlords choose Pie Tax and how our taxation app works to see how it fits your self assessment. You can also learn more about our team and the fintech expertise behind the app. When you're ready to file with confidence, Get started with Pie and let the app do the heavy lifting