SPV incorporation in Stanmore: when s162 TCGA 1992 defers the CGT — and when HMRC challenges it

Stanmore's typical portfolio incorporation produces a CGT problem that is often larger than the Section 24 saving it aims to capture. A 5-property HA7 portfolio acquired between 2005 and 2015 at an average of £340,000 per property, now worth £780,000 each, carries roughly £2.2 million of accrued capital gains. On a straightforward transfer to an SPV, those gains crystallise at market value and generate a CGT bill of approximately £528,000 at the 24% higher rate. That is not a cost the annual Section 24 saving recovers quickly — at £28,000/yr of saving, the pure-CGT break-even is nineteen years before SDLT and legal costs are considered. The only way the Stanmore incorporation arithmetic actually works at this scale is if s162 TCGA 1992 incorporation relief applies — and qualification is neither automatic nor universal.

Section 162 rolls the accrued capital gains into the base cost of the shares issued by the new SPV, deferring CGT until those shares are eventually disposed of (which for most Stanmore landlords is never during their lifetime, making the deferral effectively permanent). The relief is automatic where conditions are met — no claim is required — but HMRC does not provide advance clearance on whether a specific activity qualifies, and this is exactly where Stanmore portfolios run aground. Since the 2018 CIOT statement, HMRC has refused non-statutory clearance on s162 qualification; specialists must form their own view and evidence it properly in case of future enquiry. The three conditions that matter, drawn from statute and the Ramsay v HMRC [2013] UKUT 266 case law: (a) the transferor must be carrying on a 'business' — which includes property letting, confirmed by Ramsay overturning decades of HMRC resistance; (b) the whole of the business's assets (other than cash) must transfer to the company; (c) the consideration must be wholly or mainly shares in the receiving company.

The practical qualification test that specialists apply to Stanmore portfolios is activity-driven: HMRC's internal manual CG65715 states that 20 or more hours per week of personal management activity is indicative of a business. For a landlord who outsources everything to a letting agent, works full-time in another profession, and spends two hours a week on their portfolio, s162 qualification is genuinely doubtful — the activity looks like investment, not business. For a Stanmore landlord with five or more leveraged BTLs, active involvement in tenant selection, maintenance decisions, refurbishment projects, and borrowing decisions, the 20-hour threshold is usually met — but it must be evidenced contemporaneously, through time logs, communications, and decision records. Retrospective reconstruction of hours is possible but weaker than contemporaneous documentation. A specialist preparing an HA7 portfolio for incorporation builds the activity evidence in the six-to-twelve months before the incorporation event itself, not afterwards.

The second practical issue is the 'whole of the assets' requirement. A Stanmore landlord who wants to incorporate four of their five BTLs — leaving one in personal ownership for some specific reason — fails the whole-of-assets test and s162 simply does not apply to any of the transferred properties. This is surprisingly common: landlords reserve a favourite property, or one in a lower-growth area, and unknowingly forfeit relief on the four they did transfer. The correct structure is either full incorporation of the property business or, where only partial incorporation is desired, a proper partition beforehand: incorporate the business as a going concern with all its assets, then separately dispose of or distribute one of the properties from the SPV later. Extra-Statutory Concession D32 also helps here — it allows HMRC to disregard mortgage liabilities assumed by the new SPV from the 'non-share consideration' calculation, which would otherwise partly disqualify the relief.