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Incorporation relief under s. 162 TCGA - definition of 'business'

Incorporation relief under s. 162 TCGA -...

Do readers have experience of the definition of a business for incorporation relief purposes.

We have a partnership owning a large portfolio of residential and commercial property. They work full time collecting rents, and organising repairs. In some instances they are very hands on with repairs themselves. They have an office and it is a full time job.

Is this a business for s.162 purposes?

Does it make a difference if partnership rental income was shown as rental income in individual partners tax returns rather than a partnership trade? ie no NIC's have been paid therefore it does not look like a business to me.


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11th Nov 2011 11:42

Sounds like a business. I would get clearance from HMRC.

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11th Nov 2011 12:11

Business v Trade

There is a difference between a business and a trade, so the non-payment of NIC may not be that relevant (particularly since it has been held by the Special Commissioners that someone carrying on a property business would not be regarded as an "earner" for NIC purposes).

HMRC accept that a property business carried on by a company is a business (because not to do so would mean shooting themselves in the foot for associated companies purposes).  See CTM03590.

They don't accept though that an unincorporated property business is a business.  See this article by Malcom Gunn in Taxation from 2007, who I assume has faced the argument.  Much of the case law he refers to is somewhat spurious, as it refers to provisions drafted differently to S.162 and he refers to a non-tax case where the word "business" has been referred to as an "etymological chameleon".

So here you are transferring something from a partnership to a company that apparently isn't a business before the transfer but is after!  You can only try and argue the point.

It's interesting to note though, that for a limited liability partnership to be incorporated, the partners (intending members) must be "associated for the purposes of carrying on a lawful business with a view of profit".  I believe that the lawful business carried on by many LLPs is a property business.  Just a thought.

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to JC
11th Nov 2011 12:33

Thank you very much George.

I can't imagine I can get advance clearance on this, do you?


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11th Nov 2011 12:48

Material uncertainty over business transactions

I think it may fall within the non-statutory business clearance procedure.  You can only try.

A section from HMRC's Non-Statutory Business Clearance Guidance manual, NBCG2200, may even help with the argument that it's a business!

You do also need to consider the SDLT issues with your proposed transfer, as you seem to be walking into market value linked transactions (with a bit of multiple dwellings relief for the residential elements).

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to tbk
11th Nov 2011 13:00

Thank you George, very good of you.

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11th Nov 2011 13:50

Sounds like a business

I think George is being rather cautious. I think it correct that a single property owned by individuals is very unlikely to be regarded as a business (except, perhaps, where there are multiple occupants - I have heard of a case where s162 was successfully claimed for such). However, where there are so many properties that it becomes a full-time occupation I struggle to see the case for arguing that it is not a business. I am aware that this has been successfully claimed a number of times but I am not aware of any specific case where I know HMRC questioned it.

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11th Nov 2011 14:08

I do agree

Thank you Graham.

I'd also take what the OP describes to be a business, personally, but I wasn't aware that the point had ever been accepted by HMRC, having never pursued it myself.  I had seen the point oft denied though, mainly by reference to Malcom Gunn's article and HMRC's somewhat contrary indication in CG65715.

It's useful to learn from someone as experienced in such matters as yourself that this view isn't as "set in stone" as other commentators have suggested.

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to Kent accountant
11th Nov 2011 14:17

What a great forum this is, I was not expecting such full replies. Thank you.

Still a little nervous because we have a £4 million gain.

The fact no NIC's were ever calculated has no bearing then?

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11th Nov 2011 14:32

Little bearing

I think that NICs have not been paid does not prevent it, as a matter of fact, being a business.  I share your nervousness as to whether HMRC will agree, but must bow to Graham's experience in these matters.

The NIC issue would be whether, if HMRC agree it is a business, NICs are due historically.  Having reread the Special Commissioner's decision in Rashid, they didn't completely rule it out.  The word "business" in the definition of "employment" in S122(1) SSCBA 1992 does need to be taken in the context of the other items in the list though.

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28th Nov 2011 17:31

sounds to me like the best you will get is a trade related property and theres no goodwill just a stamp duty bill...Id be careful incorporating this one

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28th Nov 2011 17:44

May be no SDLT either

I think this will work for capital gains purposes. The question is whether SDLT will apply. If it does it could get expensive as George mentioned. As a partnership it might be exempt from SDLT by reason of FA 2003 Sch 15 para 18 but, if nothing is done beyond managing the property business, HMRC may not accept it. See comments in PIM1030. You can get advance clearance on this from the Stamp Office. 

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