Editor's note: This brief was summarised by The Property AI Newsroom from a report by Property118. Read the original article for full details.

Call for HMRC Clarification on 20-Hour Guidance for Landlord Incorporation Relief

An open letter has been sent to HMRC requesting clarification on the 20-hour guidance for landlord incorporation relief. The letter highlights concerns that the reference to 20 hours in HMRC’s Capital Gains Manual is being treated as a strict threshold by landlords and advisers.

The letter, published by Property118, addresses the Commissioners for His Majesty’s Revenue and Customs and focuses on paragraph CG65715 of the Capital Gains Manual. This paragraph states: “You should accept that incorporation relief will be available where an individual spends 20 hours or more a week…” The letter notes that HMRC also advises that other cases should be considered carefully.

According to the letter, the 20-hour reference was likely intended as an example for HMRC officers, but it has become widely regarded as a dividing line between property investment and property business. As a result, landlords are often told they must demonstrate around 20 hours of personal activity each week to qualify for incorporation relief, sometimes without considering other relevant factors such as the scale, continuity, or commercial organisation of the property business.

The letter points out that section 162 of the Taxation of Chargeable Gains Act 1992 does not specify a minimum number of working hours, nor does it require all activities to be performed personally or measured weekly. The statutory requirement is that a business is transferred as a going concern, along with its assets, in exchange for shares.

The 20-hour figure appears to have originated from the facts of the case Elisabeth Moyne Ramsay v HMRC [2013] UKUT 0226 (TCC), where the tribunal noted that the taxpayers spent approximately 20 hours per week on property activities. However, the judgment did not state that 20 hours is a minimum requirement for section 162 relief. Instead, the tribunal emphasised that the degree of activity as a whole is what matters in determining whether a business exists.

The letter calls for HMRC to clarify its guidance to prevent the 20-hour reference from being misinterpreted as a strict rule, which is particularly relevant for letting agents and inventory clerks advising landlords on incorporation relief.