HMRC Investigation into £9million Property118 ‘Incorporation Relief’ Claim

Text Size

In June 2020 HMRC opened an investigation into a £9 million ‘incorporation relief’ claim made by a Property118 client who used the Beneficial Interest Company Transfer structure “BICT” to substantially incorporate their property rental business.

The HMRC manual states:

“TCGA92/S162 applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares. Provided that various conditions are satisfied, see CG65710, the charge to CGT on the whole or part of the gains will be postponed until such time as the person transferring the business disposes of the shares.

The way the relief works in practice is that all or part of the gains arising on the disposals of the assets are ‘rolled over’ against the cost of the shares.

Relief under TCGA92/S162 is sometimes referred to as ‘incorporation relief’……”

Source: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65700c 

The incorporation substantially completed without the landlords refinancing their extremely advantageous mortgages.

The HMRC manuals confirming this is allowable say:

“The transferor is not required to transfer business liabilities to the company but often does so. This is normally done in practice by the company giving the transferor an indemnity in respect of those liabilities.

In strictness, business liabilities taken over by the company represent additional consideration for the transfer and relief under TCGA92/S162 should be restricted. However, ESC/D32 enables any business liabilities taken over by the company to be ignored when quantifying `other consideration’ in recognition of the fact that the transferor is not receiving cash to meet any tax liabilities on the transfer and that the shares in the company are worth less than if the business had been transferred unfettered by liabilities.”

HMRC closed their enquiry at the beginning of February 2021.

The accountant acting for the landlords’ said:

 

The Property118 Tax law team always prepare every case we work on as if it will be investigated, even though the ratio of investigations is only ever one in every 100.

If you are an Accountant, Mortgage Broker or Estate Agent and would like to discuss Introducing business to us, please click here

Book a Tax Planning Consultation

Consultations include Fact Find, expert analysis and a recorded video conference with your Property118 Consultant and your Accountant. Thereafter, our recommendations will be reviewed by Cotswold Barristers (at no extra charge). If they agree, and if you instruct them to complete the legal work to implement our suggestions, Cotswold Barristers will adopt our recommendations as their own professional advice, for which they carry professional indemnity insurance of £10,000,000 per claim. All consultations are confidential and you will be provided with a copy of the recording of the video conference. We GUARANTEE total satisfaction or a full refund.
  • Please provide an overview of your circumstances and what you are looking to achieve.
  • Property118 is unique in terms of offering tax planning consultations for a fixed fee of £400 with a guarantee of total satisfaction or a full refund.
Related Pages