Relief from capital gains tax on incorporation of a business

Taxpayers that actively manage their property lettings and wish to incorporate their business will welcome a recent decision in the Upper Tribunal (Tax Chamber). The Upper Tribunal determined that the term “business” in the capital gains tax (CGT) “incorporation relief” rules should be construed broadly and, therefore, ruled that the taxpayer’s property letting activities, which amounted to approximately 20 hours each week, constituted a business for the purpose of CGT incorporation relief.

The Upper Tribunal made it clear that, in this case, it was the day-to-day activities, together with the refurbishment work and development proposals undertaken by the taxpayer, that persuaded the tribunal that the taxpayer was conducting a business. This may leave a question mark over whether the day-to-day activities alone would have sufficed. Taxpayers should therefore take care to ensure that the level of activities that they are involved in are sufficient to amount to a business.