A tax tribunal has thrown out a claim for incorporation relief by a landlord changing her trading status to a limited company.
In what is believed to be the first case before a tribunal by a landlord claiming the lucrative capital gains exemption offered to other traders, Elizabeth Ramsay failed in her appeal against HM Revenue & Customs.
Traders have successfully claimed incorporation relief on business property for many years when changing their status from a partnership or sole trader to a limited company.
However, HMRC has staunchly argued investment property does not qualify for the relief.
Mrs Ramsay claimed the relief when transferring a home converted in to 10 flats from personal ownership in to a limited company.
HMRC objected on the grounds the property was an investment not a business and disallowed her claim.
Mrs Ramsay appealed and the case was heard before a tax tribunal. She argued that the effort involved in running the flats amounted to a business rather than passive management of an investment.
To support the claim, she told the tribunal she spent at least 20 hours a week at the flats dealing with administration, sorting out repairs and gardening.
Special Commissioner John Avery Jones felt that if a property rental was an investment or a business was a matter of degree and, having considered the evidence,Mrs Ramsay’s input was work to maintain her investment and not enough to constitute a business.
He also pointed out that Ms Ramsay made tax returns on the property as an investment rather than a business, which contradicted her own case.
“The tribunal does not agree with the assertion that the actual number of flats and therefore scale was instrumental in converting the activities into a business. The reality was that property was a single investment,” said the commissioner.
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