In our eNews update last month, we reported on Ramsey v Revenue & Customs Commissioners (2013) UK UT 0226 (TCC) in which Mrs Ramsey successfully argued that her house in Belfast, divided into 10 flats and let out, qualified as a business for capital gains tax purposes.
The Upper Tier Tribunal agreed that the degree of activity undertaken by Mrs Ramsey was such that the property was a business, rather than agreeing with HMRC who argued that the activities Mrs Ramsey had carried out as landlord were “normal and incidental to the owning of an investment property”.
This is a sharp contrast to the outcome in Trustees of David Zetland Settlement (2013) TC02690 where the First-tier Tribunal have decided that IHT Business Property Relief (“BPR”) will not be available despite the taxpayers arguing they actively manage the business, with the Tribunal concluding that the activities were predominately investment activities ruling that the Settlement’s business was “mainly” one of dealing in land or making or holding investments.
The taxpayers dealt with the general management of a property enterprise, which included a commercial building divided into units let to tenants for different periods of time, as well as a property portfolio comprising 11 residential properties.
The taxpayers were assisted by staff members performing different tasks and the commercial building tenants had the use of various facilities, including a café, gallery, meeting rooms, bicycle arch, parking and Wi-Fi.
The Tribunal ruled that despite the services not being investment related, they were insufficient to make the business one that was mainly non-investment.
The provision of services and facilities to a property business would usually be ancillary to the main business and, in R&Commrs v Lockyer (personal representatives of Pawson Dec’d) (2013) BTC1605, the Judge explained that where the business was one of letting the building, the provision of additional services or facilities to the occupant was unlikely to be material and would not be enough to prevent the business remaining mainly one of holding the property as an investment.
This case again demonstrates the difference in considering whether a business qualifies for capital gains tax reliefs or reliefs under inheritance tax provisions, with the bar apparently being much higher for IHT purposes.