Wilkins Southworth

Why is the Moyne Ramsay ruling so important?

The tax case involving Moyne Ramsay v HMRC broke new grounds concerning property investment, landlord activities and S162 incorporation relief. In simple terms, Elizabeth Moyne Ramsay and her husband were looking to incorporate their property business. This would mean transfer existing property business assets into a company. The case revolved around a property that had been divided into ten separate flats to let. Was this a business or an investment?

What is the definition of a business?

Some businesses are incorporated into limited companies, seen as separate legal entities from their owners, while others operate in the owner’s name. However, many people will be surprised to learn there is no formal definition of a “business” regarding the array of finance acts on the UK statute books. Historically, HMRC has only recognised businesses that “trade”, suggesting that property businesses would not qualify for incorporation relief. In this case, two acts take centre stage:-
  • Section 162 TCGA 1992 (Taxation of Chargeable Gains Act)
  • Inheritance Tax Act 1984
The HMRC argument was simple; the Moyne Ramsay property assets did not constitute a business and therefore did not qualify for S162 incorporation relief.

What is S162 incorporation relief?

When incorporating a business, effectively transferring from personal ownership into a limited company, there is no effective change of ownership. Instead, the assets are transferred into a limited company in exchange for shares in the company. Under normal circumstances, the sale of assets to a company (remember companies are seen as having their own legal identity) would constitute a chargeable event. As a consequence, this could trigger a potentially sizeable capital gains tax liability. S162 incorporation relief recognises the fact that ownership of the business will not change. Consequently, any capital gain on the sale of the business is rolled over. Effectively, this means that any potential capital gains tax liability would only be crystallised upon the sale of shares in the future. Moreover, as individuals have their own annual capital gains tax allowance, the staggered sale of shares over several tax years could mitigate or even eliminate any capital gains tax liability.

FTT and UT Rulings

The initial HMRC ruling concluded that property management activities carried out by Moyne Ramsay were similar to those relating to a passively held investment. Therefore, the assets transferred into the limited company were deemed to be investments instead of constituting a business. Consequently, the application for S162 incorporation relief was refused, but that was not the end of the story. Moyne Ramsay appealed to the First-Tier Tribunal (FTT) in 2012, attempting to recognise their landlord activities as a bona fides business. This was rejected with the FTT agreeing with the earlier HMRC ruling. Unperturbed, Moyne Ramsay appealed to the Upper Tribunal (UT), resulting in an overturning of the original FTT decision. The UT judge acknowledged that the 20 hours a week spent by the owners managing the property constituted a business. He described this as an “earnest endeavour” instead of the expectations relating to a passive investment. Interestingly, the UT judge mentioned an error in law made by the FTT concerning business activities. Consequently, S162 rollover relief was granted to Moyne Ramsay.

Property investment or landlord services

It is not difficult to see why HMRC may deem simple property investments as ineligible for S162 rollover relief. However, where the investor actively provides an array of landlord services, surely this constitutes a business? In the case of Moyne Ramsay, we know that the owners spent on average 20 hours a week:-
  • Meeting and assisting tenants
  • Carrying out repair and maintenance
  • Reviewing documentation
  • Chasing rental payments
There was a difference of opinion between the FTT and UT concerning the recognition of business activities. The FTT approached this from the informal HMRC definition that businesses must “trade”. There was also a suggestion that before transferring the property assets into a limited company, various business inheritance tax reliefs would not be available upon death. This was seen as further strengthening the ruling that this was not a business. The UT questioned this approach and focused more on the business-related activities carried out by the owners. These activities went above and beyond normal expectations for a passive investment, moving into a hands-on business scenario.

Buy to let tax relief

In the 2017/18 tax year, the UK government introduced changes to how landlords could deduct mortgage interest from their rental income. Historically, net rental income (gross rental income minus mortgage interest payments) would be added to your personal gross annual income, with tax charged at the appropriate rate. Changes to the system were phased in between 2017 and 2020. After April 2020, no mortgage interest payments could be deducted from rental income. Instead, all qualifying mortgage interest payments received a new fixed 20% tax credit. Consequently, basic rate taxpayers would see no change in their tax bill. They received mortgage interest relief at 20% and were charged 20% on gross rental income. However, the situation is very different for higher rate taxpayers. Higher rate taxpayers will now receive a fixed 20% tax credit on their mortgage interest payments. However, rental income will be added to their annual income, attracting a tax charge of 40%. The following calculations illustrate the difference-

Pre-mortgage interest relief changes

Rent income: £10,000
Mortgage interest: £9000
Net income: £1000

A higher rate taxpayer would pay 40% on their net rental income of £1000, equating to £400 a year.

Post-April 2020

The situation is very different:-

Tax relief on mortgage interest: 20% x £9000 = £1800
Tax charge on rental income: 40% x £10,000 = £4000
Net tax charge: £2200

So, under the post-April 2020 system, a higher rate taxpayer will see their tax bill increase from £400 up to £2200 per annum. Using the gross rental income figure, added to your annual income, could take a basic rate taxpayer through the high rate taxpayer threshold. There may also be added consequences, such as an additional tax on child benefits and other entitlements once you move through the threshold. There is a lot to consider! How would transferring the business assets into a limited company assist with this tax charge hike?

Limited company accounts

The long-held practise of offsetting income against costs will not change for limited companies. Consequently, when producing company accounts, corporation tax will be paid on net rental income, after mortgage interest and other cost deductions. While this would benefit higher rate taxpayers, there are additional costs and allowances to take into consideration. Therefore, it is essential to take professional advice before transferring all of your business property assets into a limited company. There is also the subject of whether HMRC would confirm your eligibility for S162 rollover relief. Even though the Moyne Ramsay case has been well documented, HMRC have not verified any official criteria for future rollover relief applications. Helpful as ever, HMRC has confirmed they will only make a ruling post-transfer.


There is no doubt that the Moyne Ramsay v HMRC case will be discussed in great detail for many years to come. In this instance, there were ten apartments, but only five were let at the time. However, the relationship between the number of properties and time spent managing property/tenants is still not set in stone. More extensive property portfolios may not require the same level of management, while some smaller portfolios may require a higher degree of hands-on assistance. The ability to use incorporation tax relief can prove extremely useful in managing capital gains tax liabilities. However, it is worth noting that stamp duty land tax would still be chargeable on property transfers. Therefore, while the transfer does not crystallise a capital gain, it is still recognised as an acquisition by the company.


The Moyne Ramsay v HMRC case is intriguing and something which will be discussed at great length for many years to come. Firstly, how can HMRC compare active landlords to passive property investors? Secondly, despite numerous financial acts on the statute books, how is there no formal definition of a business? While there are many other factors to take into consideration, company costs as well as corporate/personal allowances, this ruling will prove useful for many landlords. The UK government recently announced significant changes to mortgage interest relief for buy to let landlords. While basic rate taxpayers will see no change in their liabilities, higher rate taxpayers will see a significant increase in their tax charge. Consequently, many people are now looking to incorporate their property businesses and make use of S162 rollover relief. There is no doubt that the Moyne Ramsay ruling will have a significant impact on those looking to incorporate their property businesses. However, despite losing the case, HMRC has yet to update the criteria for future S162 rollover relief applications. It appears there is still a grey area relating to the level of hands-on activity compared to the size of a property portfolio. Indications are that HMRC will consider applications on a case-by-case basis, post-transfer. The constant battle between individuals, businesses and HMRC is well documented and unfortunately, still ongoing. Even though HMRC lost the Moyne Ramsay case there appears to be a reluctance to admit defeat and put future S162 rollover relief applications on a more formal footing. It is safe to assume that we will see many appeals in the future, with the First-Tier Tribunal and Upper Tribunal seemingly at odds. In this environment, it is essential to take professional financial advice before finalising any transfers.

Chris Wilkins FCCA is a Chartered Certified Accountant, Registered Auditor and the managing partner of Wilkins Southworth based in Barnes, South West London

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