HMRC will commence a further One-to-Many letter campaign this month, targeted at taxpayers who incorporated their property business in 2017-18 and applied Incorporation Relief on the transfer, for Capital Gains Tax (CGT) purposes.
Affected taxpayers are those who declared a disposal of their property interests in 2017-18, but paid no Capital Gains Tax (CGT) due to the application of Incorporation Relief.
The letters state that HMRC believes an excessive amount of Incorporation Relief may have been applied and suggests checking whether the:
- Capital gain arising on Incorporation was greater than the value of the property business transferred.
- Amount of any gain held over exceeded the value of shares received in consideration.
- Calculation of relief included types of consideration other than shares, such as a credit to a Director’s loan account.
If taxpayers identify an error that requires disclosure they are invited to contact HMRC via a specific email address.
Where it is believed that the tax return submitted is correct, taxpayers are advised to confirm this with HMRC by email, providing a calculation of the relief available and details of the consideration received on incorporation.
HMRC states they may seek to raise a Discovery Assessment if they do not have a response within 30 days of the letter.
Useful guides on this topic
CGT: Rollover (Incorporation s.162) Relief
Incorporation Relief is available to individuals. Gains from the disposal of business assets on incorporation can be deferred. What assets are included? How does the relief work?
Incorporation: Property business/Buy-to-let
What relief can I claim if I incorporate my residential property business? What claims and elections do I need to make? What are the Capital Gains Tax (CGT) and Stamp Duty Land Tax (SDLT) implications?
Incorporation: SDLT & property partnerships
What are the Stamp Duty Land Tax (SDLT) implications of incorporating my property partnership? Are there any reliefs available? When do the anti-avoidance rules in s.75A-75C Finance Act 2003 apply to partnerships?
Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
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