7 year rule

by **bil8999** on Sat Aug 13, 2011 6:59 pm

maths wrote:Are the properties residential or are they used in a business?

They are all residential

by **taxationuk** on Mon Aug 15, 2011 4:53 pm

If you are trying to avoid IHT on the value of the property in your Estate then any percentage of the Company you own will still be chargeable for IHT. There will also be SDLT due on the transfer to the Company as well as possible CGT implications. If as assumed you are trying to remove it from your Estate then a transfer into a Trust would possibly be a better option.

If you would like to discuss this further please contact me.

Kind regards

Terry Hodge
th@taxationuk.com

by **ensigntaxation** on Tue Aug 23, 2011 11:41 am

Hi Bill,

How's it going?

What you are planning is feasible. It would be possible to get the properties into a company using statutory relief on an incorporation (assuming you have a property rental business - which doesn't look like a wild assumption) with the kids as directors of the new company.

Bearing in mind what you say you want to achieve no issues with IHT at this point either. Would need to consider Stamp Duty (as would be deemed to take place at market value) but this is manageable.

Cheers
Andy

by **bil8999** on Tue Aug 23, 2011 12:50 pm

maths wrote:Are the properties residential or are they used in a business?

Residential

by **maths** on Tue Aug 23, 2011 2:13 pm

It would be possible to get the properties into a company using statutory relief on an incorporation (assuming you have a property rental business - which doesn't look like a wild assumption)

If the above comment relates to the relief under TCGA 1992 s 162, such relief is unavailable to a mere holding of properties as passive investments as appears to be your case.

by **AvocadoK** on Wed Aug 24, 2011 11:19 am

An interesting one, maths. Do you think it is as cut and dried as that?

Section 162 does refer to 'businesses' and the tax legislation refers to property investments as a 'property business.' Even the IHTA requires a specific exclusion to property investments to prevent it from qualifying from business property relief (the inference being that it would qualify but for that exclusion). So is there a possibility of relief under s162?

I'm aware that HMRC's guidance says that s162 does not apply where the investment in property is passive, though not sure how solid their view is. Do you have any further light to shed?

Regards

AK

by **maths** on Thu Aug 25, 2011 12:27 am

AvocadoK

Sadly, as you know, nothing in the tax world is ever cut and dried !!

I note your comments but definitions re "business" in other areas are not determinative of the definition for s162 purposes although perhaps illustrative.

I think, having over the years studied the various cases, the simple pure letting of residential properties will not qualify as a business (even if more than one property is involved). If, however, a number (ie more than one) of properties are involved and material activities are performed by the landlord in relation thereto, then it may be possible to successfully argue that a business exists for s162 purposes.

As you indicate, HMRC are definitely of the view that pretty well under any circumstances a business would not exist. However, their reliance upon some of the cases is I think suspect and certainly, in my opinion, the case law that distinguishes between companies and individuals would not today stand up.

In the present case, without further detail, it is of course not possible to be definitive but I would be wary of proceeding on the basis that incorporation relief is available.

I suspect, you and I are in agreement; neither of us know !!!

by **ensigntaxation** on Fri Aug 26, 2011 6:46 pm

Hi Chaps

In my opinion, to suggest that 25 let residential properties cannot constitute a business for the purposes s162 TCGA can't be right. It may not be a trade, but would be surprised if you could not argue with a degree of confidence that this was a business. Each to their own in the merry world of tax I suppose!

Cheers
Andy

by **AvocadoK** on Sat Aug 27, 2011 12:05 pm

Maths/Andy,
I'd agree that a landlord with various properties on, say, 25 year leases, is probably too passive to be a business. But a portfoio of residential properties, typically with 6 month tenancies, involves quite a bit of management. Provided that the management is not all being left to an agent, I'd be comfortable with treating it as a business and claiming s162 relief - tho I respect maths' reservations.
Regards
AK