HMRC changes 20-hour landlord incorporation guidance weeks after Property118 open letter

HMRC has changed its published guidance on the controversial 20-hour test for landlord Incorporation Relief, expressly confirming that somebody who spends fewer than 20 hours a week on their property activities may nevertheless be carrying on a business for the purposes of section 162 of the Taxation of Chargeable Gains Act 1992.

The amendment to HMRC’s Capital Gains Manual at CG65715 was published on 20 August 2026, less than a month after Property118 published an open letter asking HMRC to clarify precisely this point. HMRC’s own Capital Gains Manual update record describes the purpose of the amendment as having “clarified HMRC approach where fewer than 20 hrs a week spent on the activities”.

That may look like a relatively modest alteration to one paragraph of an HMRC manual, but its practical importance for landlords and professional advisers should not be underestimated. The 20-hour figure has been quoted for years as though it represented HMRC’s minimum requirement for a property rental activity to amount to a business, despite there being no numerical test of that kind in section 162 and the Upper Tribunal never having created one.

What HMRC now says

The relevant guidance is contained in CG65715 – Incorporation Relief: meaning of ‘business’. HMRC continues to say that its officers should accept Incorporation Relief where an individual spends 20 hours or more each week personally undertaking activities indicative of a business, so that part of the guidance has not disappeared.

What HMRC has changed is the crucial sentence that follows it. The guidance now says that cases involving fewer than 20 hours should be considered carefully because the activities “may still be considered a business for section 162 purposes”. Officers are then instructed to establish the facts and consider the wider business factors set out in the guidance before deciding whether a business exists.

This makes the position considerably clearer. Twenty hours remains a useful HMRC benchmark because its officers are told to accept qualifying business activity at or above that level, but the reverse proposition does not follow. A landlord who spends 19, 15, 10 or some other number of hours cannot properly be rejected merely because a weekly timesheet falls below 20 hours; the underlying question remains whether the activities, considered as a whole, amount to a business.

That is also consistent with HMRC’s separate CG65710 guidance setting out the conditions for Incorporation Relief, which requires the transfer of a business as a going concern together with the relevant business assets. There is no reference there to a statutory minimum number of hours because Parliament never enacted one.

Why Property118 asked HMRC to clarify it

On 22 July 2026, Property118 published an open letter to HMRC about the 20-hour landlord incorporation guidance after becoming increasingly concerned about the way CG65715 was being interpreted by landlords and professional advisers.

Our objection was never that time spent working in a property business is irrelevant, because plainly it can provide useful evidence. A landlord who devotes substantial time to acquisitions, financing, refurbishment, tenant matters, compliance, redevelopment and management may well find that those activities help demonstrate the scale and substance of the business being carried on.

The problem was that one factual finding from one tax case had gradually acquired the status of something approaching an unofficial statutory test. Landlords were regularly being told that they needed to demonstrate approximately 20 hours of personal activity every week, sometimes before anybody had properly considered the size of the portfolio, the continuity of its activities, the way the operation was commercially organised or the overall degree of activity undertaken.

That concern was explored in more detail in our earlier article, Has the Upper Tribunal exposed a flaw in HMRC’s guidance on landlord incorporation relief?, where we questioned whether one fact from the Ramsay judgment had come to overshadow the legal test itself.

Where did the 20 hours come from?

The figure originates from Elisabeth Moyne Ramsay v HMRC [2013] UKUT 0226 (TCC), the leading Upper Tribunal authority on whether property letting activities can amount to a business for section 162 Incorporation Relief.

Mrs Ramsay’s property was divided into ten flats and the evidence showed that she and her husband spent approximately 20 hours each week undertaking a range of activities relating to its management, maintenance, refurbishment and proposed redevelopment. The Upper Tribunal concluded that the activities were sufficiently extensive to constitute a business, but it did not turn the factual figure of 20 hours into a legal requirement which every subsequent landlord had to satisfy.

The more important part of Judge Berner’s reasoning was his emphasis upon the degree of activity as a whole. HMRC itself repeats that principle in the current CG65715, alongside factors such as whether there is a serious undertaking earnestly pursued, reasonable continuity, substance in terms of turnover and activities conducted regularly on recognised business principles.

That is why treating 20 hours as the dividing line was always an uncomfortable reading of Ramsay. It elevated one item of evidence in one particular case above the much broader analysis which actually led the Upper Tribunal to its conclusion.

Then came GCH Corporation

The issue became even more interesting following the Upper Tribunal judgment in HMRC v GCH Corporation Ltd and others [2026] UKUT 00219 (TCC), published on 12 June 2026.

GCH Corporation was not a landlord Incorporation Relief case. It concerned an LLP and the separate wording in section 59A TCGA 1992, which applies where a limited liability partnership carries on a trade or business with a view to profit. It would therefore be wrong to suggest that GCH Corporation determines whether any particular landlord satisfies section 162.

What made the judgment particularly relevant was the Upper Tribunal’s consideration of the word “business” and its express discussion of Ramsay. The Tribunal upheld the conclusion that an LLP whose activities centred upon investments was nevertheless carrying on a business with a view to profit, rejecting HMRC’s substantive appeal. We examined that judgment separately in HMRC loses Upper Tribunal appeal over the meaning of ‘business’.

One of the striking features of GCH Corporation was what the Tribunal did not do. It did not attempt to construct a minimum-hours requirement for the LLP members, nor did it suggest that using professional advisers somehow weakened the existence of the business. Its attention was directed towards the commercial reality of the activities and whether they constituted a business with a view to profit.

Against that background, we asked HMRC to make explicit what Ramsay itself did not say: approximately 20 hours happened to form part of the evidence in that case, but 20 hours was not prescribed by Parliament as the minimum threshold for a property business.

HMRC declined to answer, then changed the guidance

HMRC responded to our open letter on 28 July 2026, confirming that the correspondence had been shared with the relevant HMRC colleagues. HMRC declined to comment directly on the specific points raised, explaining that it does not generally provide individual responses to feedback concerning policy or guidance matters and that its guidance is kept under review.

On 20 August 2026, just over three weeks after that response, HMRC changed the relevant guidance. Its own official manual update history records the amendment to CG65715 and specifically states that HMRC had clarified its approach where fewer than 20 hours a week are spent on the activities.

We obviously cannot say that the Property118 open letter caused HMRC to make the amendment, because we have no evidence on which to make that claim. What we can say is that Property118 publicly identified the problem on 22 July, HMRC confirmed on 28 July that our representations had been passed to the relevant colleagues, and on 20 August HMRC published an amendment addressing the precise issue we had raised.

Readers can draw their own conclusions about the timing.

What has actually changed for landlords?

The law itself has not changed as a result of this amendment because HMRC’s internal manuals do not create legislation. The starting point remains section 162 TCGA 1992, while Ramsay remains the most directly relevant Upper Tribunal authority on the meaning of business in the landlord Incorporation Relief context.

What has changed is HMRC’s published interpretation, and that matters greatly in practice because accountants, tax advisers, landlords and HMRC officers regularly consult the manuals when deciding whether an Incorporation Relief claim is supportable.

There should now be much less scope for an adviser simply to tell a landlord, “You don’t spend 20 hours a week on the properties, therefore you don’t have a business.” HMRC’s own guidance now expressly accepts that activities below that figure may still constitute a business and requires the facts and wider business characteristics to be considered.

That does not mean every landlord qualifies, nor should it. There will remain situations where the activities are properly characterised as little more than passive investment ownership, just as producing a timesheet containing 20 hours of minor or unnecessary administration should not magically convert an investment into a business.

The sensible question is the one that should always have been asked: what does the property operation actually do, how substantial and continuous are its activities, how is it organised and managed, and what is the overall degree of commercial activity being undertaken?

One important issue remains unresolved

There is still one part of CG65715 that HMRC has not clarified. Its 20-hour acceptance wording continues to refer to an individual “personally undertaking” the activities, leaving open the question of how work performed on behalf of a property business by employees, managing agents, contractors and professional advisers should be treated.

We raised this specifically in our open letter because modern businesses delegate work. A landlord may remain responsible for acquisitions, disposals, financing, major expenditure, regulatory matters and the strategic direction of a substantial portfolio while employing other people to carry out inspections, bookkeeping, routine management, repairs or tenant administration.

It would be a curious result if becoming better organised and employing people to perform work efficiently somehow made an established business less capable of satisfying a statutory business test. Delegation is an entirely normal characteristic of successful businesses, and in many cases the need to employ staff, agents and professional support arises precisely because the operation has become too substantial for its owners to perform every task personally.

For that reason, we still believe HMRC should clarify the significance of activities undertaken on behalf of a property business rather than concentrating only upon those physically carried out by its owner.

A welcome clarification nevertheless

That outstanding question should not detract from the significance of what HMRC has now done. The revised HMRC guidance on the meaning of business for Incorporation Relief puts beyond serious doubt something that should arguably have been apparent from Ramsay all along: 20 hours is not the minimum number of hours a landlord must personally work each week before their property activities are capable of amounting to a business for section 162 Incorporation Relief.

For landlords who have previously been told that Incorporation Relief was unavailable simply because they could not satisfy a 20-hour weekly figure, that clarification could be very important. It does not provide an automatic entitlement to relief, but it does mean that the proper analysis should now return to the facts of the business rather than stopping at an arbitrary number on a timesheet.

Why experience matters when incorporating a property business

I’m going to say this plainly: no other organisation has more practical experience of landlord incorporation than Property118.

That is a bold claim, but it is one we have earned the right to make. We have conducted thousands of consultations with landlords, helped hundreds to incorporate their property businesses and supported clients through HMRC compliance checks and Discovery Assessments.

We have also taken our own landlord incorporation model all the way through a 10-day First-tier Tribunal hearing against HMRC.

I am not aware of any other organisation that can match that experience.

Setting up a company is the easy bit

Some landlords think incorporation means setting up a limited company and transferring their properties into it.

I wish it were that simple.

A company can be formed online in a few minutes. The difficult part is working out whether transferring your existing property business into that company makes sense in the first place.

What happens to your mortgages? How will you take money from the company? Should your children become shareholders now or later? What happens if you die? Will you still be able to sell individual properties? Should the mortgages be refinanced immediately, or would that destroy good interest rates and trigger substantial fees?

Then there are the Capital Gains Tax and Stamp Duty Land Tax questions.

Getting just one of those things wrong can be extremely expensive.

Most landlords are trying to solve business problems

The landlords who come to Property118 are rarely looking for a tax scheme. Most have spent decades building their portfolios and are trying to work out what comes next.

Some want to reduce their personal exposure to business risks. Some want to bring their children into the business without immediately handing over everything they have worked for. Others are approaching retirement and want the property business to continue after they are no longer able to run it.

Many do not want to refinance 10, 20 or 30 properties on the same day simply because an adviser tells them that is how incorporation is normally done. They may have valuable mortgage rates, early repayment charges or lenders that will not offer an equivalent company mortgage.

Those are real commercial problems. Tax is important, but it is part of the picture rather than the whole picture.

That distinction matters because the right structure should follow the landlord’s objectives. The structure should not be chosen first and then dressed up with reasons afterwards.

Experience earned the hard way

Property118’s incorporation work has probably been examined more closely than any other landlord incorporation model in the country.

HMRC allocated Scheme Reference Numbers to two arrangements connected with our work. Critics called us scheme promoters, cowboys, grifters, clowns and considerably worse. Some expected us to disappear and leave our clients to deal with the consequences.

We did not.

We stopped taking on new incorporation consultancy while the dispute was being resolved. We supported clients through HMRC enquiries, instructed leading counsel and appealed against HMRC’s decisions.

The hearing lasted 10 days and involved thousands of pages of evidence. On 31 July 2026, the Tribunal allowed the appeals and cancelled HMRC’s Scheme Reference Numbers.

That does not mean the Tribunal decided that every landlord should incorporate or that every landlord automatically qualifies for every available tax relief. It did not. The case was about whether the arrangements had to be disclosed under the DOTAS rules.

What it does mean is that HMRC’s attempt to treat the arrangements as notifiable tax avoidance schemes failed after a full hearing.

There is a considerable difference between commenting about landlord incorporation from the sidelines and standing behind clients when HMRC comes knocking.

We have done the latter.

Why one professional is rarely enough

An accountant may understand the tax. A solicitor may understand the legal documents. A mortgage broker may understand the finance.

All three may be perfectly competent within their own areas, but that does not necessarily mean anybody is looking at the transaction as a whole.

A solicitor might insist that all legal titles must be transferred immediately. That could force the landlord to repay every existing mortgage. A broker might then arrange new company mortgages because that is what the solicitor has requested. The accountant might assume the refinancing has no effect on the available tax reliefs.

Each professional completes their own part of the job, but the landlord can still end up with a poor overall result.

Property118’s role is to bring the tax, legal, accounting, mortgage and commercial considerations together around what the client is actually trying to achieve.

That is where our experience is different.

Sometimes the right answer is not to incorporate

Having more experience does not mean recommending incorporation to everybody.

For some landlords, incorporation can improve business continuity, refinancing flexibility, succession planning and the ability to retain profits for future investment.

For others, the tax costs, mortgage position, intention to sell properties or need to withdraw most of the rental income can make incorporation unsuitable.

We regularly tell landlords not to incorporate when the figures or their plans do not justify it. A limited company is a tool, not a religion.

The purpose of a Property118 consultation is not to sell a predetermined structure. It is to understand what the landlord wants to achieve and then work out whether incorporation helps.

Begin with the right question

The wrong question is:

“How do I transfer my properties into a limited company?”

The right question is:

“What do I want my property business to achieve for me and my family, and is incorporation the best way to achieve it?”

Property118 has more experience of helping landlords answer that question than any other organisation.

We have not simply read about landlord incorporation or commented upon it. We have planned incorporations, coordinated their implementation, supported clients through HMRC investigations and defended our work before the Tribunal.

Isn’t that the sort of experience you want behind you?