Open letter to HMRC: Please clarify the 20-hour guidance for landlord incorporation relief

To the Commissioners for His Majesty’s Revenue and Customs

Dear Commissioners,

We are writing to ask HMRC to revisit one sentence in paragraph CG65715 of the Capital Gains Manual, which deals with the meaning of “business” for the purposes of incorporation relief under section 162 of the Taxation of Chargeable Gains Act 1992.

The sentence in question says:

“You should accept that incorporation relief will be available where an individual spends 20 hours or more a week…”

HMRC then says that other cases should be considered carefully. The intention may simply have been to provide officers with an example of circumstances in which the relief should normally be accepted. In practice, the reference to 20 hours has acquired far greater significance. It is now frequently treated by landlords and professional advisers as though it represents the dividing line between a property investment and a property business.

Landlords are regularly told that they are unlikely to qualify for incorporation relief unless they can demonstrate approximately 20 hours of personal activity every week. In some cases, that conclusion is reached before anyone has examined the scale, continuity, commercial organisation or overall substance of the property business.

That approach does not appear to reflect either the wording of the legislation or the reasoning of the Upper Tribunal.

Section 162 does not prescribe a minimum number of working hours. It does not require the business owner to perform every activity personally, and it does not suggest that time must be measured on a weekly basis. The statutory question is whether a person transfers a business as a going concern, together with the relevant business assets, to a company in exchange wholly or partly for shares.

Time spent may form part of the evidence, but it is not the question Parliament enacted.

What the Upper Tribunal actually decided in Ramsay

HMRC’s reference to 20 hours appears to have arisen from the facts recorded in Elisabeth Moyne Ramsay v HMRC [2013] UKUT 0226 (TCC). The case concerned a property divided into ten flats and a substantial range of activities relating to its management, maintenance, refurbishment and proposed redevelopment.

The full Upper Tribunal judgment records that Mrs Ramsay and her husband had spent approximately 20 hours per week carrying out the various activities described in the evidence. HMRC did not dispute that factual finding. The judgment does not say that 20 hours must be personally undertaken by a single taxpayer, nor does it suggest that the figure represents a minimum requirement for section 162.

Judge Berner’s reasoning was considerably broader. He explained that the question was whether Mrs Ramsay’s activities, considered in their proper context, amounted to a business. He rejected the idea that those activities had to be unusual or fundamentally different from the work ordinarily associated with owning and letting property.

That point matters because many of the activities undertaken by a property business will inevitably resemble those undertaken by a diligent investor. Both may arrange repairs, deal with tenants, review rents, instruct professional advisers and protect the value of their assets. The distinction cannot be drawn merely by asking whether each individual task is one that an investor might also perform.

The Tribunal instead considered the nature and extent of the activities when viewed together. Judge Berner expressed the principle clearly when he said:

“It is the degree of activity as a whole which is material to the question whether there is a business.”

The words “as a whole” should not be overlooked. The Tribunal was not replacing the statutory question with a numerical threshold. It was saying that the business must be examined in the round, taking account of the combined effect of the activities rather than isolating one particular piece of evidence.

The Tribunal also recognised that there could be no universal quantitative test. The level of activity required to distinguish a business from the passive receipt of investment income remained a question of fact, considered in the circumstances of the individual case.

Where Lord Fisher fits into the legal analysis

The Ramsay judgment referred to what are commonly called the “Lord Fisher factors”. That description can be confusing because Lord Fisher was not a judge who devised a special test for property businesses.

The reference is to the VAT case of Customs and Excise Commissioners v Lord Fisher [1981] STC 238. Lord Fisher organised shooting parties for friends and relations, who made contributions towards the cost. The question was whether sharing those costs turned what was otherwise a social and recreational activity into a business.

When Ramsay discussed the case, Judge Berner explained that Gibson J had considered several practical indicators which might assist in determining whether an activity had the characteristics of a business. These included whether the activity was a serious undertaking earnestly pursued, whether it had reasonable continuity and substance, whether it was conducted regularly on recognised business principles, and whether it was of a kind commonly undertaken by people seeking to make a profit.

The relevant passages can be found at paragraphs 36 to 38 of the full Ramsay judgment. They make clear that the indicators were not statutory conditions and were never intended to operate as an inflexible checklist. Gibson J had specifically warned that the statutory test remained paramount and that the indicators were no substitute for it.

Judge Berner adapted the useful parts of those indicators to the section 162 context. He considered whether Mrs Ramsay’s property activities represented a serious undertaking, whether they were pursued with continuity, whether they had commercial substance, whether they were conducted on sound business principles and whether they were of a kind commonly undertaken for profit.

He then added an important further consideration: the degree of activity undertaken.

This was necessary because a landlord carrying on a genuine property business and a passive investor may sometimes perform similar individual tasks. The answer could only be reached by considering the overall nature, scale and extent of the activities. Judge Berner concluded that Mrs Ramsay’s activities, taken together, were sufficient to amount to a business.

The legal chain is therefore reasonably clear. The Lord Fisher indicators provide useful evidence of business characteristics. Ramsay applied those indicators in the context of section 162, while also requiring the overall degree of activity to be considered. Neither decision established a minimum number of hours.

Why the GCH Corporation judgment matters

The more recent decision in HMRC v GCH Corporation Ltd and others [2026] UKUT 00219 (TCC) did not concern residential property or incorporation relief. It concerned an LLP and whether it was carrying on a “trade or business with a view to profit” for the purposes of section 59A TCGA 1992.

The statutory context was therefore different, and we do not suggest that the judgment determines whether any particular landlord qualifies under section 162. Its relevance lies in the Upper Tribunal’s detailed consideration of the meaning of “business” and its express reliance on the approach taken in Ramsay.

The LLP in GCH Corporation acquired, held and disposed of investment assets. HMRC argued for a narrower interpretation of “business” which would exclude passively held investments. The Upper Tribunal rejected that approach and agreed that, in the context of section 59A, “business” should take its ordinary commercial meaning and could include an investment business carried on as a commercial activity.

The Tribunal referred specifically to paragraphs 64 to 66 of Ramsay. It said that regard should be had to the Lord Fisher factors and to the degree of activity undertaken, and that it would adopt a similar approach when interpreting section 59A. This is important because it confirms that the proper approach is not to seize upon one factual feature from Ramsay, such as the number of hours recorded, and turn it into a test of general application.

The Upper Tribunal described the First-tier Tribunal’s work in GCH Corporation as a “careful and holistic analysis”. It considered the LLP’s purpose, its transactions, the supporting activities and the commercial context before deciding whether the statutory requirement had been met. HMRC’s appeal against that conclusion was dismissed.

This does not mean that every investment activity is necessarily a business. It does demonstrate that the statutory concept is evaluated by considering the commercial reality of the activity as a whole, rather than by imposing an additional condition that Parliament did not include.

The practical problem with the present guidance

The difficulty with the present wording of CG65715 is not that 20 hours is irrelevant. A substantial commitment of time may provide strong evidence that a property activity has moved beyond passive investment. The difficulty arises when an evidential fact from one case becomes the starting point and, too often, the finishing point for every other case.

Property businesses do not operate in identical weekly patterns. A landlord may spend hundreds of hours acquiring, financing and refurbishing a property, followed by a period in which the asset is fully let and requires relatively little intervention. A major refinancing, possession claim, regulatory change or redevelopment project may produce another period of intensive activity.

It would make little commercial sense to say that the business exists during the busy weeks, disappears during the quieter ones and reappears when another project begins.

The same concern arises where activities are delegated. Modern businesses routinely employ staff and engage managing agents, accountants, solicitors, surveyors and contractors. The owner may retain responsibility for acquisitions, disposals, financing, capital expenditure, compliance, performance and the long-term direction of the portfolio while delegating much of the routine administration.

Delegation does not ordinarily prevent a person from carrying on a business. In many cases it is evidence that the business has become sufficiently organised and substantial to justify the appointment of professional support.

The current guidance refers specifically to an individual “personally undertaking” the activities. That wording risks creating the impression that work carried out by employees, agents and contractors on behalf of the business should be ignored. It may also result in a well-organised property business being treated less favourably than an otherwise identical business whose owner performs every administrative task personally.

Efficiency should not count against the existence of a business.

The opposite point is equally important. A person should not necessarily qualify simply because they can produce a record showing 20 hours of minor or unnecessary administration. Time is evidence, but its significance depends upon the nature, substance and commercial purpose of the work being undertaken.

A proper analysis must therefore consider what the business does, how it is organised, the scale and continuity of its activities, the responsibilities retained by its owners and the activities carried out on its behalf. A weekly hours figure cannot answer all of those questions.

Why clarification is needed

HMRC’s manuals have a direct influence over the advice received by landlords. They affect whether claims are made, whether professional advisers are willing to support them and whether restructuring proposals are dismissed before the underlying business has been properly examined.

These are not merely tax-driven decisions. Landlords may consider incorporation because they need greater refinancing flexibility, want to manage commercial liabilities, wish to introduce family members into the business, or are planning for retirement, succession and business continuity. The availability of incorporation relief may affect whether those commercially motivated changes are affordable, but it should be considered by applying the legislation and the case law rather than an unofficial rule of thumb.

Clearer guidance would not require HMRC to accept every claim. It would simply ensure that claims involving fewer than 20 hours are evaluated by reference to the correct legal principles.

What we are asking HMRC to change

We ask HMRC to amend CG65715 so that it states expressly that section 162 contains no prescribed minimum number of hours and that the approximately 20 hours recorded in Ramsay formed part of the evidence in that particular case.

The guidance should also explain that the Lord Fisher indicators are evidential considerations rather than statutory conditions, and that they must be applied alongside an assessment of the degree of activity and the wider commercial circumstances.

It would also be helpful for HMRC to confirm that activities undertaken by employees, agents and professional advisers on behalf of a property business are not automatically disregarded, and that using a managing agent does not, by itself, prevent the owner from carrying on a business.

A revised concluding passage might say:

“Whether property letting activities constitute a business for the purposes of section 162 is a question of fact and degree. There is no prescribed minimum number of hours. The approximately 20 hours per week recorded in Elisabeth Moyne Ramsay formed part of the evidence in that case but do not constitute a statutory threshold. Each case should be considered by reference to the activities as a whole, including their nature, scale, substance, continuity and commercial organisation, together with the degree of activity undertaken by or on behalf of the owner.”

This would retain the practical value of HMRC’s guidance while removing the risk that taxpayers and advisers mistake an example for the law.

We are not suggesting that every landlord is necessarily carrying on a business for section 162 purposes. There will remain cases in which the activity is properly characterised as the passive holding of an investment. Nor are we suggesting that GCH Corporation has rewritten section 162 or displaced Ramsay.

Our concern is narrower. One factual feature of Ramsay appears to have acquired a significance that the judgment itself did not give it. The Upper Tribunal’s reasoning requires the business and its activities to be considered as a whole, applying a broad meaning of “business” in the context of section 162. The recent GCH Corporation judgment reinforces that holistic approach rather than supporting a rigid numerical threshold.

Parliament asked whether there was a business. HMRC’s guidance should help taxpayers and officers answer that question, rather than encouraging them to substitute a weekly hours calculation for the statutory test.

We invite HMRC to provide a substantive written response and to confirm whether CG65715 will now be reviewed in light of the reasoning in Elisabeth Moyne Ramsay v HMRC and HMRC v GCH Corporation Ltd and others.

Yours faithfully,

Mark Alexander
Founder, Property118.com