TCGA 1992 s 162 provides relief for the incorporation of a business, whereby the gain on transfer can

be rolled over into the base cost of shares issued on transfer. Historically, HMRCs view was that s 162
could not apply to property investments. This view was successfully challenged at the Upper Tribunal
in Ramsay v HMRC [2013] UKUT 226 (TCC), [2013] STC 1764.

Mrs Ramsay owned a block of 15 flats. She had inherited a one-third share, but later acquired the other
two thirds from her brothers with a bank loan. The property was later transferred to a company. She applied
for planning permission to refurbish and redevelop the property, although no work had been done at the
time of the transfer. The Ramsays dealt with the management and maintenance of the property themselves,
spending around 20 hours per week on it, and had no other occupation during the period.

The UT decided that the correct approach was to consider whether Mrs Ramsays activities were a serious
undertaking earnestly pursued or a serious occupation; whether they were an occupation or function
pursued with reasonable or recognisable continuity; whether they had substance in terms of turnover;
whether they were conducted in a regular manner and on sound recognised business principles; and
whether they were of a kind that are commonly made by those who seek to profit by them. It concluded
they were.

The First Tier Tribunal had previously decided in favour of HMRC. The Upper Tribunal said the FTTs approach
was incorrect, because the FTT had focused on the meaning of trade rather than business.

Previously, HMRCs guideline stated that passive holding of investments or the holding of properties
as investment does not amount to a business. These words since been removed and now it states that
there has to be some activities to qualify for a business and just a modes degree of activity would not
suffice. It shows us that the quantity of the activity involved is important.

The UT decision and updated HMRC guidance leave some uncertainty. What degree of activity is
required by the taxpayer? If the Ramsays had not applied for planning permission for redevelopment,
would their activity still have constituted a business? If the Ramsays had used a managing agent, would
it still have constituted a business? As with a trade, it should not matter whether the taxpayer uses an
agent, but this isnt certain from the case, or HMRCs guidance. Where the gains on the portfolio are
large, it can be advisable to seek an HMRC non-statutory clearance.