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Incorporation of a Property Portfolio

In this article Richard Gray, Barrister of Elysium Law considers the tax reliefs available as well as the evidential and anti-avoidance issues to be considered when incorporating a property portfolio into a Company. The article takes not only a brief look at case law but considers the advisors retainer and the practical steps to be taken with the client when undertaking such work.

Much has been written about the incorporation of a property portfolio from a partnership into a limited company.

It is important to remember that the whole transaction consists of two elements

(i)         Incorporation of a business; and

(ii)        Transfer of the partnership

Clients (and sometimes their advisors) confuse the two, but each is a separate and distinct consideration.

To a considerable extent, each is fact specific and based upon evidence, which the advisor and their clients should be able to refer to should the claim for Roll-over Relief be challenged by HMRC and/or the issue of the existence of a partnership, is also called into question.

The Legislation -Rollover Relief Taxation to Chargeable Gains Act 1992

162 Roll-over relief on transfer of business

(1)        This section shall apply for the purposes of this Act where a person who is not a company transfers to a company a business as a going concern, together with the whole assets of the business, or together with the whole of those assets other than cash, and the business is so transferred wholly or partly in exchange for shares issued by the company to the person transferring the business.

The legislation does not define the term ‘business’ and largely as one may know, the matter is dealt with in case law and by the evidence produced by the taxpayer as to the carrying on of a business should there be a challenge for the relief claimed. The classic case is that of  Elisabeth Moyne Ramsay v HMRC[1] (but again, there is no defining one size fits all factual scenario) and the issue is therefore fact specific to each case. Records of any business activity should be capable of being produced if required and by all persons within the business.

Further examples can be found in case law but be advised, that HMRC will not give non-statutory clearance on this point. It is down to the taxpayer and perhaps the advisor to formulate the case and be able to meet any anticipated challenge from HMRC.

Invariably, the accountant/advisor will know the client, but it is important that in drafting the retainer letter, the advisor should attribute the ultimate responsibility to the client, if possible, as to the facts of how the enterprise was run, which should be recorded in a comprehensive file note and sent by detailed letter to the client for confirmation and signature.

Be aware however, that in drafting the retainer, the incorporation will have been brought about possibly upon the accountant’s advice and unless seeking independent advice such as from Counsel, the accountant/advisor should really acquaint themselves with the facts and give the client a full explanation of the cases on the point if necessary. Please also be aware that the client will invariably be a consumer and any attempt to limit or exclude liability must be considered in the light of Part 2 of the Consumer Rights Act 2015. In a case where there is a large claim for such relief, it may be advisable to seek advice from Counsel and instruct Counsel to draft the appropriate retainer letter.

Debt/Equity – Point to remember

Rollover relief can be claimed only where the equity in the properties is more than the Capital Gain. It is important that clients understand the debt/equity position. Whilst acting for them during their business they should have made full disclosure as to any re-mortgaging of the properties and what they have done with the money acquired. If that money has been removed from the portfolio and spent on anything outside of it, then the incorporation may not be possible unless the debt is repaid prior to incorporation or regardless of withdrawal, there is still enough equity in the properties. Again, use a simple analogy such as re-mortgaging for a new private residence. In a removal situation the gain will be more than the equity in all probability, but the client should set the facts down and then undertake the calculation. Remember, that the information given relies upon the accuracy of the client. Therefore, the retainer letter should exclude any liability for the information given. An example of the calculation is given in HMRC manual CG65740.

Partnerships and SDLT relief

Partnership as transferor

Given that the consideration is for shares then the payment of SDLT will be calculated on the value of the shares.

Section 53 of the Finance Act 2003 and the Market Value Rule

53 Deemed market value where transaction involves connected company

(1)        This section applies where the purchaser is a company and—

(a)        the vendor is connected with the purchaser, or

(b)        some or all of the consideration for the transaction consists of the issue or transfer of shares in a company with which the vendor is connected.

(1A)     The chargeable consideration for the transaction shall be taken to be not less than—

(a)        the market value of the subject-matter of the transaction as at the effective date of the transaction.

(4)        Where this section applies paragraph 1 of Schedule 3 (exemption of transactions for which there is no chargeable consideration) does not apply.

But this section has effect subject to any other provision affording exemption or relief from stamp duty land tax.

Where there is a transfer at Market Value to a connected Company an SDLT charge will therefore arise.


FA2003, Schedule 15, para 18 onwards applies to the transfer of a chargeable interest from either a Partnership or an LLP[2] and will apply upon an incorporation where the existing business is operated through a Partnership or LLP.

The calculation at para 20 (“Transfer Of Chargeable Interest from a Partnership: Sum of The Lower Proportions”) provides that the chargeable consideration will be equal to the % of the income rights changing hands applied to the market value of the property.

The shares should be issued in proportion to the partnership income.

SDLT relief will not be available if shares are issued disproportionately to the capital in the partnership.

It appears that HMRC accept that FA2003, Schedule 15 takes effect in priority to the market value rule in s53 of the Finance Act 2003. This means that no SDLT would be chargeable if the transfer came from a partnership or limited partnership providing that the steps in paragraphs 18-22 of Schedule 15, are followed. Again, the existence of a partnership is a matter for the individual client, and one cannot simply undertake a ‘one size fits all’ approach.

Of note is paragraph 17A of Schedule 15. Essentially, if value is removed from the partnership within 3 years of land being transferred to it, where there was no SDLT or reduced SDLT by a partner or connected person[3] then paragraph 17A operates to produce a charge. However, incorporation does not remove the property and Schedule 17 will not apply.

Two points of importance also must be recognised:

  • This rule appears to be an anomaly in the legislation in that partners are favoured in this way. In that respect a partnership deed should be in existence, or the accounts treated as partnership accounts. One cannot retrospectively draw up partnership accounts if they have not been operated in this way previously.
  • Partnership and Co-ownership are NOT the same. There must be evidence of one partner being able to bind another and a separate bank account being operated. All must agree to share profits and losses[4].

There are two cases with which the advisor should be familiar.

As to the existence of a business and a partnership one needs to refer to the case of  SC Properties and Another v Commissioners for HM Revenue & Customs.

For the purpose of this article, we propose to concentrate upon the partnership issue that arose in the case. The Partnership itself was not registered with HMRC until February 2019, which was long after the property transactions which were the subject of the tax dispute had occurred. Whilst the appellants (but strangely not one of the partners Mrs Cooke who did not give evidence) argued that the partnership occurred in 2014, HMRC rejected this. Whilst Partnership accounts were prepared for 2015-2017, and a Partnership return was filed for 2017 HMRC argued that on the facts there was no business (there being no mention of a partnership) and that neither Section 162 nor Schedule 15 applied.

As far as the existence of a partnership is concerned guidance was had by reference to the case of  Burnett v Barker [2021] 3332(Ch)

This case calls very much into question certain assumptions that advisors make when looking at the question of the existence of a partnership. Whilst this case was not on the point of the SDLT relief that is often sought, it nevertheless discloses interesting issues set out in the Partnership Act 1890.

Section 1(1) of the Partnership Act 1890 provides:

Definition of partnership

1. (1) Partnership is the relation which subsists between persons carrying on a business in common with a view of profit.

From the statutory definition it appears that before a partnership can be said to exist, three conditions must be satisfied, i.e. there must be:

(1) a business;

(2) which is carried on by two or more persons in common;

(3) with “a view of profit”

Section 2 of the Partnership Act 1890 sets out certain rules for determining the existence of a partnership:

Rules for determining existence of partnership

2. In determining whether a partnership does or does not exist regard shall be had to the following rules:

(1)       Joint tenancy, tenancy in common, joint property, common property or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof.

(2)       The sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived.

(3)       The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but the receipt of such a share, or of a payment contingent on or varying with the profits of a business does not of itself make him a partner in the business; 

For the sake of completeness, we have set out paragraphs 40-42 of the judgment and advisers should bare this in mind when advising clients.

  1. With one exception (the receipt of a share of profits), the above rules are formulated as negative propositions and merely establish the evidential weight to be attached where the particular facts of a case precisely duplicate those set out in the section. However, it will rarely, if ever, be possible to divorce those facts from the surrounding circumstances so as to permit the statutory rules to be applied in their pure form. Fundamentally, in determining the existence of a partnership, regard must be paid to the true contract and intention of the parties as appearing from the whole facts of the case (Lindley & Banks, para 5-03).
  2. There is some further guidance about the evidence required to prove a partnership in Lindley & Banks, Chapter 7 and in particular the types of ‘usual’ evidence relied on in para 7-23 etc including (so far as likely to be relevant here): accounts (draft or final); advertisements; agreements and other documents; bills, circulars and invoices; brochures; conduct; holding out; joint bank accounts; joint property; letters and memoranda; meetings; profit share; tax returns; use of property; wages; and witnesses.
  3. Although conduct is clearly relevant, it will not be determinative, particularly if it can be demonstrated that there was actually no intention to create a partnership. As to witness evidence (which is also relied on) – a witness may be asked whether named individuals compose the firm.

In light of this judgment, it may once again be advisable to go to specialist Counsel for advice especially where the reliefs sought are large, and Counsel can then advise if appropriate upon the collation of evidence. Our suggestion would be to obtain statements of truth from the Clients with exhibits in the form set out as required by the FTT (Elysium law can assist in this respect) and obtain further evidence such as that mentioned above. Above all, read and consider Section 2 (1) and (2) above and once again go through PIM1030 with the clients.

In summary, the reliefs available to people who carry on a property business partnership are significant, but a thorough process must be undertaken with the clients before incorporation takes place.

Points to remember

  • Is there a business and can this be evidenced by facts if required?
  • Is there a Partnership? NOTE: Co-Ownership is not the same. Again, can this be evidenced by the partnership accounts, any partnership agreement, any stationery in the name of the partnership used by the partners for correspondence?
  • If in doubt, get a further opinion from Counsel and ask what evidence is required including statements of truth from the clients.
  • Go through PIM1030 and the Partnership Act.
  • Clarify what the debt/equity position is and get this certified by the clients in clear terms.

Anti-Avoidance Rules

Anti-avoidance rules are set out in the Finance Act 2003 Sch 15 para 17A.

Paragraph 17A imposes a charge to SDLT if, during the three years after a para 10 transfer of land to a partnership, the transferor or a partner connected with the transferor:

(i)         Withdraws money or money’s worth from the partnership (other than income profit);

(ii)        Reduces their interest in the partnership share; or

(iii)      Ceases to be a partner. This would include the withdrawal of capital from the capital account and the repayment of a partner’s loan.

Does incorporation constitute a withdrawal for these purposes?

Some ask whether an incorporation is to be treated as a ‘withdrawal’ for the purposes of para 17A

The answer is no. A withdrawal is only a qualifying event if it is coupled with a partner withdrawing capital from his account, reducing his interest in the partnership

Further Anti-Avoidance provisions

Of further interest is Section 75A of the Finance Act 2003

This may be relevant where the following takes place:

  1. Property investor operates as a sole trader or joint owner with A.N. Other;
  2. A Partnership or LLP is formalised; and
  3. Sometime afterwards this Partnership is ‘converted’ to NewCo

Without any of the anti-avoidance provisions, and assuming this was the genuine substance of the transaction, then an SDLT charge could be avoided.

Clearly, the planning could fall within the generality of s75A given that:

  1. The property Investor (V) will dispose of a chargeable interest and NewCo (P) will acquire it;
  2. Subject to the precise definition of ‘transaction’, a transaction [the partnership and the incorporation] is involved in connection with the disposal and acquisition (“the scheme transactions”); and
  3. 3.      the amounts of stamp duty land tax payable in respect of the scheme transactions would be less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P on its disposal by V.

One question, highlighted above, is whether we have a scheme transaction. This is defined at s75A (3) which provides a (non-exhaustive) list of ‘transactions. The incorporation process would not fall within the definitions of a scheme transaction.

A question would therefore be whether, assuming that the Partnership had been in place for a reasonable period, and was being genuinely operated as a partnership, there is a realistic danger that HMRC would invoke 75A?

Whilst I am aware, that HMRC is seeking to apply this section more aggressively than it has historically done so in relation to SDLT planning arrangements, I do not believe that there is a real risk of HMRC making a successful attack. This section needs to be carefully reviewed with the client however before incorporation takes place.


In conclusion property incorporation can be very useful in many circumstances but clearly each and every aspect of it both as to the calculations and principles of the existence of the business and as a separate consideration the partnership must be carefully considered.

If you require further advice on incorporations relief or require assistance, then please call us on 0151 328 1968 or visit our website

[1] Ramsay v HMRC [2013] UKUT 0236 (UTT).

[2] Partnership includes LLP

[3] See paragraphs 10-12 of Schedule 15

[4] See HMRC guidance at PIM1030 which SHOULD be read and gone through with the client.

Causes of Action in Failed Off-Plan Developments

In this article Ruby Keeler-Williams of Elysium Law considers actions in relation to failed fractional off-plan developments. The article takes a look at the courses of action together with the potential heads of loss.

During the past 5 years we have had the privilege of representing a number of large, multi-national groups in claims for professional negligence, breach of trust and breach of contract against conveyancing solicitors relating to various off-plan fractional residential development schemes.

The Facts

These cases have inevitable followed a similar formula, in that a Developer markets and sells an off-plan project, predominantly to overseas buyers. These buyers intend to let the units upon completion. The development use a fractional sales model and buyers typically pay large deposits of 50%-80% of the total purchase price. These deposits were due to be used to fund completion of the project and were held on trust within a ‘buyer company’, usually with the Sellers solicitor as director, pursuant to a legal charge.

The money held within the buyer company was all spent on construction and more pertinently marketing and the buyers lost all of their deposits with little to no building work completed.

The Potential Defendants

There were 3 potential defendants to consider in these matters: the Developer, the Seller’s Solicitor and the Buyer’s Solicitor.

The Developer in these cases inevitably went into administration, with the freehold of the development site as the only asset. The buyers were creditors, however the typical recovery tended to be between 10 to 20 pence in the pound of their loss.

Action against the Seller’s solicitor was contemplated, but ultimately not pursued. This was because the funds were being held by the buyer company in accordance with the Agreements for Sale, upon which the Buyer’s Solicitor had been instructed to advise. Further, the release of funds was in accordance with the authority given by the Buyer’s Solicitor. This matter was contemplated in detail in the case Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd [2022] EWHC 4 (Ch)

This left the Buyer’s Solicitor as the relevant party to pursue in obtaining recourse. The Buyer’s Solicitors were often on a ‘panel’ of solicitors presented by the developer and/or the sales agent. The buyers, who were almost all based overseas, typically received a ‘legal report’, which was brief in it’s explanation and was not expanded upon in meetings with the clients. The clients invariably did not understand that the transaction they were entering into was not a standard conveyance.

Causes of Action

There were 3 grounds pursued in the claims against the Buyer’s Solicitors. These were:

  • Professional Negligence in failing to conduct due diligence into the contracts and other documentation which were contained in the ‘Seller’s pack’ (such as the Agreement for Sale, the Lease, the Management Agreement);
  • Breach of Contract, in failing to properly advise their client and failing to properly carry out due diligence under the letter of retainer; and
  • Breach of Fiduciary Duty and/or Trust in allowing the monies to be paid over to an unregulated ‘buyer company’ account.

The Legal Issues

During the course of these matters, various legal authorities were considered. These included (but were not limited to):

  • Barker v Baxendale Walker Solicitors and another [2017] EWCA Civ 2056 in considering the solicitors specific duty to warn as to the risks inherent in the purchase;
  • BPE v Hughes Holland [2017] UKSC 21 in relation to the approach to assessing damages for loss of chance in a professional negligence claim;
  • SAAMCO in considering whether the solicitors were retained to provide information or advice;
  • Dreamvar (UK) Limited v Mischcon de Reya; P&P Property Ltd v Owen White & Catlin LLP [2018] EWCA Civ 1082 in considering the buyers entitlement to equitable compensation.


Elysium Law has been successful in obtaining many multi-million pound recoveries for client groups based across the globe in this area of law.

If you have been involved in a failed development similar to this, please call us on 0151 328 1968 or contact us via to see if we can assist you.

Data Breach: What Are My Rights

In this article, Ruby Keeler-Williams of Elysium Law considers the consequences of a personal data breach and what rights you have. The article briefly looks at the legislation and considers quantum and case law.

The General Data Protection Regulation (GDPR) and the Data Protection Act 2018 set out rules as to how data is collected, used, stored, and protected.

Under the legislation, any organisation which holds and determines the purpose of the processing of personal data must implement appropriate technical and organisational measures to ensure that the processing of personal data complies with the rules.

A breach of personal data can occur if appropriate measures are not in place. A breach of security may lead to the destruction, loss or unauthorised access to personal data.

This infringes your rights as an individual and can have serious consequences. We have been instructed on matters where a breach in the security of a company led to the unauthorised disclosure of employee identity documents and bank details. These details were then distributed to criminal groups and companies were fraudulently set up in the employees’ names.

If a company that holds your data processes it in breach of the legislation or holds your data in such a way that it is disclosed in an unauthorised way, whether accidentally or deliberately, then you are entitled to claim for compensation.

If your claim is successful, you will receive damages, also known as compensation. You will be able to claim for any identifiable losses which have arisen from fraudulent transactions caused by identity theft. You will also be able to make a claim for general damages if the breach in your data has caused you distress. We will discuss your case at length and identify which damages are relevant to your specific matter.

Your level of compensation will depend on the nature of the data breached. If the data breached does not contain sensitive information (such as name alone) and/or is quickly remedied, then whilst you have a right to claim, in reality the claim will be worth very little and may not be worth pursuing. It is for this reason why you should seek legal advice at the earliest possible opportunity.

Decisions in recent years illustrate that the High Court will not condone claims that are exaggerated and unnecessarily complex. An example is Stadler v Currys Group Ltd [2022] EWHC 160 (QB), whereby a refurbished device was resold without a factory reset to remove the previous users purchase details, leading to a £3.49 purchase being made on the user’s account. The Claimant issued high court proceedings seeking £5,000 in damages for breach of confidence, misuse of private information, negligence and breach of data protection law, seeking injunctive relief. The defendant made an application to strike out the claim and was successful save for the breach of data protection law. The judge also transferred the claim down from the High Court to the County Court and suggested that the small claims court was the appropriate allocation.

In some cases the data breached is sensitive, such as medical records, identity documents, bank details, etc. In these cases, there will be a substantial claim for damages.

Due to the relatively recent developments in technology and the sensitive nature of such claims, there is limited case law detailing the quantum of awards of damages. Many cases settle before they reach the courts. Each case will be assessed on its own merits and due to the individual nature of a claim for distress, a group of individuals who have suffered the same category of data being breached may receive different awards.

Generally, damages for breach of data will be awarded within the following guidelines

  • Personal details (home or email address, date of birth, etc) – £1,000 to £1,500
  • Medical information (depending on who it is disclosed to/the nature of the information) – £2,000 – £5,000
  • Financial information (depending on who it is disclosed to/the nature of the information) £3,000 to £7,500

If you have suffered as a result of a breach of your personal data, please contact us via telephone on 0151 328 1968 or via email at to have a discussion with the team. We will have a free, no obligation discussion with you to help determine the merits of your claim and can advise you on the next steps if you wish to pursue it further.

Sole Directors: Amend Your Articles

In this article Richard Gray of Elysium Law considers amendments to the Model Articles adopted by a company with a sole Director.

Elysium Law were approached recently concerning the amendment to the Model Articles adopted by a Company who only had a sole Director.

The Company had secured the offer of a mortgage, but the lender required an amendment to the articles in that the acceptance of the mortgage offer and a charge over the property could be accepted by the Sole Director.

In pursuance of that requirement, we advised upon and amended the articles in the modified form as well as drafting the Special Resolution required.

The decision in Hashmi v Lorimer-Wing [2022] EWHC 191 (Ch) has called into question whether the articles of companies which adopt or automatically incorporate the model articles for private companies must be amended if the company is to be a sole director company. The High Court considered, among other things, the proper interpretation of Model Articles 7 and 11 and held that the provisions in Model Article 11(2) should be construed as imposing a requirement for a company to have a minimum of two directors.

Article 7

“7.—(1) The general rule about decision-making by directors is that any decision of the directors must be either a majority decision at a meeting or a decision taken in accordance with article 8.

(2) If

(a) the company only has one director, and

(b) no provision of the articles requires it to have more than one director,

the general rule does not apply, and the director may take decisions without regard to any of the provisions of the articles relating to directors’ decision-making.

Article 11

11.—(1) At a directors’ meeting, unless a quorum is participating, no proposal is to be voted on, except a proposal to call another meeting.

(2) The quorum for directors’ meetings may be fixed from time to time by a decision of the directors, but it must never be less than two, and unless otherwise fixed it is two.

(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision

(a) to appoint further directors, or

(b) to call a general meeting so as to enable the shareholders to appoint further directors.”

Article 11, more or less replicates regulation 89, and anticipates that there must be at least two directors to form a quorum. A company as a matter of law however must have only one director.

Where only one director holds office, article 7(2) disapplies any provisions of a company’s articles relating to decision making by directors, provided the articles do not specify that at least two (or more) directors are to hold office at all times. If the articles do specify such a minimum number of directors, a sole director may only take decisions for the purposes of appointing further directors (article 17(1)(b)) or calling a general meeting to allow the shareholders to appoint further directors (article 17(1)(a)).

In Hashmi (above) the Court held that Model Article 7(2) was clear; it permitted a sole director to manage the company, where no provision of the articles required it to have more than one director. In this case, bespoke article 16.1 of the company’s articles replaced Model Article 11(2)) and required there to be multiple directors for board meetings to be quorate which the court considered also to mean that the articles required it to have more than one director. That being the case, Model Article 7(2)(a) was disapplied.

This decision indicates that it would be wise for existing private companies with model articles or articles based upon them may wish to amend them, by for example amending Model Article 11(2) by not requiring the company to have more than one director within the meaning of article 7(2)(a).

It seems that the validity of acts taken by sole directors in companies with articles based on the model articles is now likely to be called into question.

As a consequence, companies which have, or have had, a single director may also wish to consider whether, where appropriate, they should ratify some or all of the previous decisions of those directors. Note that amendments of articles will only take effect from the date of amendment, and not all companies are likely to ratify all past decisions of their sole directors.

Clearly when forming a new company bespoke articles should be filed rather than model articles. The suggestion must be that the provision of Article 11 is changed to accommodate the sole director position. A suggestion has also been made that Article 15; the recording of decisions should also be reviewed to accommodate the position.

Call us on 0151 328 1968 or email for an initial discussion with one of our team.