There is now huge pressure on indebted landlords to incorporate their property businesses, to avoid the restriction on the deduction of interest and other finance charges which has applied since 6 April 2017 (see our newsletter 3 September 2015).
Where an actively-managed property portfolio is transferred to a company the gains arising maybe rolled into the value of the shares received, using incorporation relief (TCGA 1992, s 162), if it can be shown that the letting activity is a “business”. This was the essence of the EM Ramsey case, as decided by the Upper Tribunal in 2013. Following that case HMRC amended the guidance in its Capital Gains manual (para CG65715).
The new guidance sets out the reasoning of the judge in the EM Ramsey case, and HMRC believes that should be sufficient for any taxpayer to make a judgment on whether their business constitutes a “business” for incorporation relief. HMRC has also stated that it will no longer give a ruling on this point under the non-statutory clearance service.
We can help you decide whether the business you are planning to incorporate does fall within the boundaries of “business” for incorporation relief, and guide you through the other conditions required for that relief.
Written by the Tax Advice Network