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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Following on from the Budget proposal to restrict BTL interest

Resolved Question:

Following on from the Budget proposal to restrict BTL interest relief on private individuals, I am thinking about selling my properties into a limited company. I realise I will have to pay SDLT but does this have to be at Market Value - or can I determine a value for the transaction.
Also I am worried about CGT on the sale to the company (that will be wholly owned by me) - can BTL be treated as a "business" that is eligible for CGT incorporation relief - if so are there any bear-traps to avoid?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

I'm assuming that you will own the company. If that is the case, then the sales to the company will be deemed to have taken place at the open market value. There is an article on the topic here, though the way SDLT rates are applied has changed since it was written. The HMRC notes are here. See SDLTM30100 and the section on companies.

There was a case a year or so ago where a taxpayer successfully argued that her letting activities amounted to a business for the purposes of incorporation relief. You can read about it here. This is not rollover relief which is where one business asset is sold and another one purchased. This is incorporation relief which is given automatically to unincorporated traders who incorporate and allows gains to be deferred. Whether HMRC will appeal further I cannot tell you.

This case will give false hope to many buy to lettors. Most in my experience take no part in the management of their properties which they have an agent do. Successive governments have never seen property letting as a proper business, rather an investment, because it doesn't really create anything though letting agents may argue otherwise. It certainly has led to price inflation that might not have happened without a buy to let boom. Attitudes do change and it may be that letting will be given access to tax reliefs that other businesses get now in the future but most of those who try to use the Ramsey case will fail I'm afraid.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

So if I am reading the article from Nichola Ross Martin correctly - the case concerned was determined to be a business rather than an investment due to the high level of personal time expended. The interesting thin about this case appears to me to be that Ramsey appears to have ceased the trading activity (of operating a letting business of 10 flats) in order to re-develop the property after incorporation. Thus weakening her case?

Anyway the punchline lies in the last line of the UTT decision.

Expert:  TonyTax replied 2 years ago.
I don't know whether the fact that the taxpayer went on redevelop the property weakens her case. The fact is that the UTT allowed her to claim incorporation relief because of the time she and her husband spent managing the property. Most people who let property won't succeed in doing that for the reasons I gave in my previous post. However, it seems to me that the door has been opened for property owners to try.
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