UPDATE 2013: this case was overturned on appeal.

In Elizabeth Moyne Ramsay v HMRC [2012] TC01871, a taxpayer was denied capital gains tax (CGT) incorporation relief because her property letting business was found to amount to holding investments and not running an active business for the purposes of the relief.

Relief under s162 TCGA 1992 - roll over of gains on business asses on incorporation may be claimed on the transfer of a business, as a going concern to a company. The effect of the relief is that any gain on incorporation is carried forward in the cost of the shares acquired. 

  • The property rental business was being incorporated prior to redevelopment of the property.
  • Once incorporated the new company proceeded with redevelopment plans.

The property business in question consisted of a single investment property: a house converted into ten flats.

  • Property business profits were returned under Self-Assessnent as income from property and not trading.
  • The taxpayer devoted approximately 20 hours a week to various activities of collecting rents and property and garden maintenance.

The tribunal found that the scale of the activities undertaken was commensurate with the size of the property but that they did not amount to business activities and so CGT relief was denied.

Our comment 

The Tribunal’s findings follow HMRC's guidance for a property rental business. S162 TCGA 1992 requires there to be a business, operated as a going concern. There is no requirement that assets should be used for the purposes of a trade and no mention of whether the business is an investment business or any other business for that matter, so it remains to be seen whether the taxpayer may lodge an appeal. 

IHT Business Property Relief is denied on for a property rental business on the basis that it is an investment activity. 


Property profits and losses

CGT reliefs: disposal of business assets

Tribunal report: Elizabeth Moyne Ramsay v HMRC [2012] TC01871