The First-tier Tribunal – in Elizabeth Moyne Ramsay TC01871 – published on 23 March 2012 – has disallowed rollover relief in relation to a property letting enterprise on the basis there was no ‘business’ being carried on. This is a significant decision. It suggests that what might previously have been identified as sufficiently active management may not, if fact, be enough.
Elizabeth Ramsey co-owned a large house in Belfast, which was divided into flats and let to tenants. The property was transferred into a company and Elizabeth Ramsey claimed rollover relief under s 162 TCGA 1992 in relation to the deemed gain. Following an enquiry, HMRC denied relief on the grounds that the property was not a ‘business’.
Elizabeth Ramsey argued that letting the property constituted a business. She and her husband spent approximately 20 hours per week carrying out the various activities including:
- Meeting with tenants
- Repairing and maintaining communal areas
- Paying electricity bills for communal areas
- Checking windows and doors to the property were locked
- Providing assistance to an elderly tenant including liaising with social services in relation to her care package.
HMRC contended that the activities in the main were those which any owner of an investment property would undertake and in addition some of the tasks performed were of a one off nature and did not represent a regular ongoing activity. Therefore the main activity was one of holding an investment and not carrying on a business.
The First Tier Tribunal found that the activities undertaken by Elizabeth Ramsey were incidental to the ordinary maintenance, repair and development of an investment property. Emphasis was placed on the fact that income was returned as rental income, and the fact that Elizabeth Ramsey let out a number of flats (i.e not just a single property) did not mean that the ownership of the property amounted to a business. Nor was it helpful that a lot of her time had been spent in relation to refurbishment and redevelopment of the property – this was undertaken to maintain or enhance an existing investment property and therefore to maximise the rental yield available.
Incorporating a property letting business is something that has become common in recent years. Prior to this decision, it might have been thought that where the property is actively managed by an individual, s 162 rollover relief could be available; however, Elizabeth Ramsey and her husband spent 20 hours a week managing the property and this was not enough to convince the First-tier Tribunal that there was a 'business'. Anyone contemplating the use of s.162 roll over relief in similar circumstances needs to take note of HMRC’s and the tribunal’s position.
For advice on whether something is an investment or a business and advice in relation to qualifying for s 162 rollover relief, please contact the TaxDesk on 0845 4900 509 and ask for Priya Dutta.