Ramsay v CRC – A Property Business Can Qualify for Incorporation Relief
Mrs Ramsay appealed against HMRC’s decision to deny her rollover relief under TCGA 1992 s.162 on the transfer of a property into a company – otherwise known as incorporation relief.
HMRC said the gain did not qualify for the relief as the property was not a business when the transfer was made.
The case was initially decided in favour of HMRC at the First-tier Tribunal. However, the case was subsequently appealed to, and heard by the Upper-tier Tribunal.
Background & Relevant Facts
The taxpayer inherited a one-third share of a block of flats in 1987. She took over the administration for the whole building in 2002 and gifted half of her share to her husband in February the following year.
The couple spent about 20 hours a week attending to the building, making sure the rent was paid on time, cleaning communal areas, forwarding post to tenants who had left, and ensuring the property was insured and complied with fire regulations.
The taxpayer purchased the rest of the building from her brothers, and in September 2004, she and her husband transferred the property to TPQ Developments Ltd in exchange for shares in the company – incorporation relief was claimed. The couple made a gift in August 2005 of all their shares in TPQ to their son, who became the sole shareholder and director of the firm.
The Case
HMRC claimed the incorporation did not qualify for rollover relief under TCGA 1992, s 162 because the property was not a business when the transfer was made. The First-tier Tribunal (FTT) agreed the Revenue’s arguments.
The taxpayer appealed to the Upper-tier Tribunal (UTT). The UTT found that the FTT’s finding was based on an error of law.
The question which was required to be addressed was a straightforward one; ‘whether the activities of Mrs Ramsay in relation to the Property constituted a business’.
Unfortunately, however, the FTT had concerned itself whether the property activities were sufficient to be taxed as trading income (rather than property income), and whether the property would have attracted business property relief.
The UTT said “business” in the context of s.162 should be interpreted broadly – there was no set test under the legislation.
The judge remarked that the criteria as to what constituted a business in Customs and Excise Commissioners v Lord Fisher [1981] STC 238 were helpful, even though that case concerned VAT.
In this instance, the work carried out by the taxpayer satisfied the tests laid out in Lord Fisher. As to the question of degree, the taxpayer’s activities in respect of the property amounted to a business for the purpose of s.162.
The taxpayer’s appeal was allowed.