The Ramsey Case, is it a business?

01 August 2018

The question as to whether there exists a property business or not for tax purposes is a key question for many taxpayers, until only a few years ago there was very little guidance or case law to assist in coming to an answer.

The case of ‘Elizabeth Moyne Ramsey V Revenue and Customs Commissioners (2013)’ in the Upper Tribunal, which went in favour of the taxpayer (Mrs Ramsey) can be seen to set a precedent, even though the case does not even draw an accurate ‘borderline’ for the rest to use when deciding whether a qualifying business exists or not. It is very important to understand that not all property investments will be classed as businesses and this will affect whether they will qualify for incorporation relief.

 Case Facts

·        Mrs Ramsey’s business consisted of a joint interest in a property which was divided into ten self-contained flats.

·        The property consisted of a communal area as well as a garden, car park and garages and a substantial repair and maintenance was carried out on them.

·        Mrs Ramsey was involved and carried out some the work personally.

·        Additional assistance was provided to an elderly tenets.

·        Mrs Ramsey was carrying out preliminary work for the planned refurbishment and redevelopment of the property prior to the transfer of the property to a limited company.

·        Mrs Ramsey and her husband each spent 20 hours a week on the management of the property business and neither of them had any other source of income during the relevant period.


In summing up the judge said “that the activity undertaken in respect of the property, again taken overall, was sufficient in nature and extent to amount to a business for the purpose of [incorporation relief]. Although each of the activities could equally well have been undertaken by someone who was a mere property investor, where the degree of activity outweighs what might normally be expected to be carried out by a mere passive investor, even a diligent and conscientious one, that will in my judgement amount to a business.”

Although Mrs Ramsey qualified, the judge made it clear that other owners of investment property might only be ‘passive investors’ and not qualify and it comes down to degree of activity undertake by the investor.

The relevant factors from the case & moving forward

The degree of activates is the main point when it comes to qualifying or not, Mrs Ramsey spent 20 hours a week working on the property business and this was found to be sufficient to indicate that a business was being carried out and HMRC were giving pre transaction clearance based on this until recently, however we have been informed that unfortunately HMRC have now stopped issuing these clearances because of the huge number of such applications.

This creates a real problem for anyone that is unclear whether or not according to the legislation their portfolio would qualify as a business or not.

It would be very unfortunate to go ahead with moving their properties into a limited company only to find out that HMRC does not agree with the incorporation relief claimed and the individual is left with potentially a massive ‘dry’ bill (dry bill is where an individual is treated as though they have made a gain even though no actual money was received to pay the bill) and it’s too late to undo the transactions.

Limited companies are not the only way to mitigate the potentially devastating effects of the changes introduced.

If you would like any assistance or have any questions about incorporating your portfolio please contact us or get in touch today by calling 0203 039 3993.

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