Following the publication last week of the result of the Hanson appeal in favour of the taxpayer, this was rapidly followed by publication of the results of the Ramsay case in the Upper Tribunal of the Tax and Chancery Chamber, with a similar result.
The Ramsay case concerned the availability of Capital Gains Tax incorporation relief on the transfer of a business to a company. In this case the business was a large house owned by Mrs Ramsay in part with her husband and son, divided into 10 flats.
The Ramsays dealt with the administration of the property, paying communal bills, undertaking communal repairs and necessary work, arranging insurance, ensuring compliance with fire regulations, clearing previous tenants discarded possessions and furniture, and preparing the flats for new tenants, with further redevelopment of the property planned.
In 2004 Mrs Ramsay transferred the house to a company and claimed incorporation relief. However HMRC ruled that relief was not due on the grounds that the property was an investment and not a business, a ruling upheld in the First Tier Tribunal (FTT).
HMRC had claimed that for a business, activities were required over and above those expected as incidental to ordinary maintenance, repair and development, and that size of a property alone did not of itself convert the ownership of that property to a business.
However, the Upper Tribunal has ruled that the FTT did not consider properly the degree of activity undertaken. It was held that the activities of Mrs Ramsay including early refurbishment and redevelopment proposals did amount to a business, and furthermore that the degree of activity is relevant where it outweighs what might normally be expected of a passive investor. Incorporation relief was therefore due.
Susie Swift, Partner in the Inverness office of Saffery Champness says:
This is another notable success for the taxpayer. HMRC has been particularly active in this area in wishing to deny relief on the grounds that what was considered by the taxpayer to be a business did not actually qualify.
There is no definition of ’business’ in statute, but case law does provide some useful guidance. However, the onus of proof is on the individual to prove that sufficient appropriate activity has been undertaken for a business to be considered present.