How TCGA 1992 s162 incorporation relief works
- s162 automatically defers CGT on the transfer of a business as a going concern to a company in exchange for shares — the gains reduce the base cost of shares received
- Deferred gains come back into charge on a later disposal of the shares, plus any further gain on the shares themselves
- Relief only applies where the entire business is transferred and consideration is wholly or partly shares — a cash element reduces relief proportionally
- The relief is automatic (not elective) but can be disapplied by election
The business activity test — HMRC's challenge
- HMRC position: passive buy-to-let letting is investment activity, not a business — s162 does not apply to portfolios that simply receive rent and carry out routine maintenance
- Courts have generally supported HMRC: Ramsay v HMRC (2013) and Rignell v HMRC (2018) confirmed passive letting does not qualify
- Stronger arguments for business status: active HMO management with staff; significant additional services; scale and systemisation comparable to a trading enterprise
- HMRC advance clearance via the non-statutory clearance service gives certainty before proceeding
SDLT, mortgage consent, and practical considerations
- SDLT: transfers to a connected company are charged at market value plus the 3% surcharge — can run to hundreds of thousands on a large portfolio
- Partnership incorporation relief: FA 2003 para 18 gives partial SDLT relief for property partnership incorporations — substantially lower SDLT where a genuine partnership exists between spouses
- Mortgage issues: buy-to-let mortgages are personal loans and cannot transfer to the company. New commercial mortgages (at higher rates) and fresh underwriting are required
- New purchases in a company: for most landlords, buying new properties through a company (without an incorporation transfer) is simpler, avoids SDLT on existing stock, and still benefits from Section 24 exemption