Can you claim capital gains tax relief on incorporation of your property letting business?

A recent tax case, Ramsay v HMRC (2013), has helped provide a bit more clarity in respect of when property letting classes as a business for capital gains tax purposes.

When incorporating a business, relief can be claimed to defer the capital gains tax due on the disposal of any assets transferred to the company, making the company liable for the gain when the asset is sold. However, with property rentals, care must be taken to ensure that the facts show an active business rather than just the holding of investments, which would not qualify for the relief. This can be a grey area and case law is often relied upon to justify a decision.

The judge in the Ramsay case found that the definition of a business should be taken to have a wide meaning for these purposes and specifically stated that declaring the income as rental income on tax returns does not imply that the letting is not a business.

When deciding whether the property letting met the criteria for a business, the main consideration was whether the degree of activity undertaken was sufficient enough to distinguish a business from passive letting.

In this particular case, Mr & Mrs Ramsey spent 20 hours a week on various duties to do with the rental properties. In addition, the rental business was their only occupation. The duties undertaken were predominantly those which an investment landlord would undertake, but it was the degree of the activities which convinced the judge that the Ramsays were in fact operating a business, and as such, were entitled to the relief.

Each property letting business needs to be considered on its own facts before it can be decided whether it would qualify for the relief.

Emily Duffy, Assistant Tax Consultant
 

If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletter

Subscribe

Get in touch

To find out more about how we can help you or your business, call us on 0808 144 5575 and speak to a member of our team. Alternatively use our contact form to send us a message or arrange a callback.

CALL 0808 144 5575

or

Contact Us

All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.

Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson Accountants, Business & Financial Advisers is a trading style of Armstrong Watson LLP. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities.

Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales No. 8800970. Registered office: 15 Victoria Place, Carlisle, CA1 1EW

Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales No. 7208672. Armstrong Watson Financial Planning & Wealth Management is a trading name of Armstrong Watson Financial Planning Limited. Registered Office: 15 Victoria Place, Carlisle, CA1 1EW