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17:19 PM, 17th April 2017, About 7 years ago 17
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Mark Smith Head of Chambers at Cotswold Barristers
He’s only gone and done it again!
This time it’s in regards to partnership SDLT/LBTT relief on incorporation.
Mark Smith is no stranger to challenging conventional interpretation of laws effecting landlords, but the news I got this weekend may well be regarded in the fullness of time as his biggest breakthrough to date.
Accountants and tax lawyers have widely held the opinion that to qualify for incorporation relief, which exempts landlords from paying Stamp Duty (LBTT in Scotland) on the incorporation of a property investment partnership, the business must be recognised by HMRC by having a partnership Unique Tax Reference number “UTR” and having filed partnership tax returns. However, Mark Smith staked his professional reputation and his PI insurance on on this being irrelevant. The opinion he has long since held is that a partnership is defined by the Partnerships Act 1890 and that eligibility for the relief follows the same arguments in what constitutes a “business” as in the HMRC vs Ramsay case.
Yet again, Mark Smith has been proven to be right.
Today I learned that a handful of Property118 readers have successfully obtained advance voluntary clearance from HMRC for incorporation relief under both s162 TCGA and for partnership stamp duty relief despite the apparent odds being against them.
In one example that Mark Smith explained to me a husband and wife jointly own a portfolio of rental property and spend in excess of 20 hours managing their business. They have never filed partnership returns, nor do they have a partnership UTR. They don’t even have a business trading name!
Nevertheless, they had always operated a joint business bank account and with professional guidance were able to document why they believed themselves to be operating both a business and a property investment partnership based on Mark Smith’s interpretation of the law. This was the basis of their clearance request to HMRC, which also included details of their their intention to transfer 100% of beneficial ownership in exchange for shares in the new company, but not legal ownership at the point of incorporation.
I am delighted to report that HMRC clearance was granted on all points.
I must point out that it was the clients tax advisers that sought and obtained the HMRC clearance and not Mark Smith, as this is not his remit. Perhaps it should be though?
A few of the properties were owned by the couple individually but rental profits had been declared on self-assessment returns as 50/50. Again this defies conventionally accepted accounting logic but was nevertheless accepted by HMRC as proof of the existence of the partnership.
In view of the above we have amended the Portfolio Restructure Software used in our tax planning consultations. At the same time we have also updated the tax bands and allowances in accordance with announcements the Chancellor of the Exchequer’s Spring 2017 Budget.
Other notable achievements for landlords by Mark Smith
In June 2017 Mark Smith’s opinion that mortgage lenders could not call in a long term mortgage unless the borrower was in default was also upheld by the Court of Appeal (see Mark Alexander vs West Bromwich Mortgage Company). This case came off the back of the UK’s largest ever direct access representative action case. The mortgage lender had added a premium to some of its lifetime Bank of England base rate tracker rate mortgage margins. Two of the largest landlord associations refused to back my case in any way and instead referred their members to the Financial Ombudsman Service “FOS” to make complaints. Insurers also refused to back the case and both the FOS and the High Court sided with the mortgage lender before the case was eventually awarded to the Property118 Action Group by the Court of Appeal. With the help of Cotswold Barristers we managed to raise sufficient money to fund an adverse costs award if we had lost the case. However, this wasn’t necessary because the entire £27,500,000 of illegally overcharged tracker mortgage interest was ordered by the Court of Appeal to be refunded. Furthermore, the entire costs of the case were recovered from the other side and the Court also awarded compensation interest. The crowd-funding monies raised were, therefore, returned in full.
In 2015 Mark Smith created a legal product which enabled landlords to incorporate without having to refinance. Industry perception was generally skeptical about this too, however, Mark Smith has since proven his critics to be wrong.
A very special relationship
When Property118 formed The Landlords Union last year it was inevitable that Mark Smith would become our Honorary Legal Counsel. We now speak on a daily basis and consult each other on all tax strategies we recommend. Cotswold Barristers insist upon Property118 Portfolio restructure Software being completed before they will accept tax planning related instructions. This software is provided to all consultancy clients of Property118.
Gary Dully
11:35 AM, 19th April 2017, About 7 years ago
Reply to the comment left by "Mark Alexander" at "19/04/2017 - 09:38":
Now then Mark, I would appreciate a bit of clarification.
Am I right in saying the process is as follows....
Stage 1. £400 + vat consultation with you for a full tax plan of our affairs.
Stage 2. £1200 + vat for making pre application to HMRC for incorporation relief.(refundable if we don't qualify)
Stage 3. £7000 to £14,000 + vat for Cotswolds to do the BICT?
Is there anything else in the costs?
Does it include the setting up of the SVP and advice on the SIC codes?
Mark Alexander - Founder of Property118
11:58 AM, 19th April 2017, About 7 years ago
Reply to the comment left by "Gary Dully" at "19/04/2017 - 11:35":
Hi Gary
Stage two is £1,500 plus VAT, but it is optional.
Setting up the SPV and advice on SIC codes should come from your accountant.
We do recommend professional valuations but again these are not compulsory.
That's everything, subject to your own accountants fees of course.
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Yvonne Francis
11:19 AM, 21st April 2017, About 7 years ago
Reply to the comment left by "Mark Alexander" at "17/04/2017 - 19:44":
Hi Mark
Sorry to be a pain again but why are stressing the 20 hour criteria? Presumably you are trying to establish the criteria on which HMRC allow landlords the status of Business, and all the benefits which can flow from that. As you have pointed out establishing whether of whether not you do work on your property lets over 20 hours is very tricky, for both landlord and HMRC. If you think some landlords have succeeded on this, then OK, but the case of Ramsay vs. HMRS 2012 failed on this. However, as you probably know Mrs Ramsay gained this status on appeal to a higher court in 2013 and won her case under totally different guide lines. These guide lines are far more sensible than any 20 hour rule so I can't help wondering why you are concentrating on this, in this post and other posts?
Mark Alexander - Founder of Property118
13:03 PM, 21st April 2017, About 7 years ago
Reply to the comment left by "Yvonne Francis" at "21/04/2017 - 11:19":
Hi Yvonne
That is not my understanding of the Ramsay case, and i have read the whole thing through at least 20 times.
HMRC always accepted that Mrs Ramsay spent 20 hours a week managing her business which consisted of a building comprising 20 flats. This was never disputed.
It was whether this constituted a "business" which HMRC argued and on which the Tribunal eventually awarded in Mrs Ramsay's favour. If HMRC had got their way, s162 would only apply to trades.
The reason we place so much emphasis on 20 hours is that we do not know whether the Tribunal would have come to a different conclusion of the time spent was less.
Can any landlord honestly say whether they spend 15 or 25 hours a week running their business? I very much doubt it. Also, could HMRC prove one way or the other? I doubt that even more!
On that basis, any clearance we apply for quotes a minimum of 20 hours a week of time spent and provides a substantial list of typical tasks the landlord undertakes, and the legislation they remain accountable for whether they outsource or not.
We charge £1,500 to deal with clearance requests, and if clearance is declined we refund in full. We liaise very closely with our clients prior to making clearance request to ensure that they are entirely happy with the way we are representing their businesses.
I trust that answers your question?
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Yvonne Francis
15:21 PM, 21st April 2017, About 7 years ago
Hi Mark
You do not say how Mrs. Ramsay's second appeal to a upper tribunal won her case. The following information is published on many internet sites so unless you consider them "false info" I think they should be taken into account. According to these sites she won based on the Lord Fisher criteria.
(1) Is it a "serious business undertaking earnestly pursued" or a "serious occupation".
(2) Are the activities an occupation or function activities pursued with reasonable or recognisable continuity?
(3) Do the activities have a certain amount of substance in terms of turnover?
(4) Are the activities conducted in a regular manner and on sound and recognised business principles?
(5) Are the activities of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them?
It does mention in no uncertain terms that to qualify, activity in the "business" is essential but nowhere does it mention in this second appeal a hard and fast 20 hours weekly. You say when you apply for clearance that a minimum of 20 hours is required. Don't want to sound arrogant but they don't always get it fully correct and any way its open to abuse on either side.
I'm interested in this question academically and also because I have an interest in being classified as a business. My aim is not to incorporate necessarily but to hold my properties as a business in order to pass them on to my children without the large IHT bill they will face. If the points above are correct I believe I may stand some chance at at least being classified as a business and I'm sure there are other 118 followers who for what ever reason IHT or s24. are in the same position and put off by your certainty of the 20 hour rule?
Mark Smith Head of Chambers Cotswold Barristers
15:37 PM, 21st April 2017, About 7 years ago
http://taxandchancery_ut.decisions.tribunals.gov.uk/Documents/decisions/Elisabeth_Moyne_Ramsay_v_HMRC.pdf
There is no 20 hour rule. What p118 and I say is that where there is 20 hours spent that is likely to be an indicator that there is a business being carried on rather than an investment being curated. It is one of several factors that you rightly identify.
Mark Alexander - Founder of Property118
16:43 PM, 21st April 2017, About 7 years ago
Reply to the comment left by "Mark Smith (Barrister-At-Law)" at "21/04/2017 - 15:37":
Thank you Mark S, naturally I concur.
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