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Sometimes, a property-based setup might look like a trade, but the law sees it differently. In this case, the deceased owned shares in F Ltd, which had a subsidiary, N Ltd, holding a six-floor London office building. Some floors were rented out, and others operated as serviced offices managed by an agent. The executors wanted Business Property Relief (BPR) for inheritance tax, claiming the serviced office activity was a trade. However, HMRC said it mainly involved holding investments, so there was no relief under IHTA 1984 s105(4)(b). The taxpayers appealed.
The First-tier Tribunal noted that owning land for rental income is generally investment activity. They examined all tasks and found that most actions, like advertising or maintaining equipment, supported the property’s value rather than providing a true service to clients. Although there were some minor services, they were too small to change the overall nature from investment to trade.
The tribunal concluded that N Ltd’s main purpose was making or holding investments, not trading. Thus, BPR did not apply, and the appeal failed. This result shows how hard it can be to classify property-related businesses as trades. Even if owners believe they offer more than passive investment, the court might disagree.
Frequently asked questions (FAQs)
Why didn’t the serviced offices count as a trade?
The tribunal decided the company mainly offered space and basic features, not a meaningful level of active services that would make it a true trade. While some extras were present, they didn’t shift the focus from holding an asset to delivering substantial services. The overall impression was still closer to managing property value than running a genuine trade. In the end, the activities were too limited and passive.
How does this ruling impact others?
It warns that just adding small services won’t easily transform investment activities into trading ones. Businesses must show real, service-oriented operations, not just property management. Without enough active input, they risk failing to meet trading criteria and losing relief benefits. Understanding these rules can guide future planning.
What should property owners consider?
Owners must know that labelling more than something as a trade is needed. Actions and services must clearly go beyond maintaining property value. If there’s doubt, reviewing the setup, adjusting services, or seeking professional input can help avoid disappointment.
Can different facts lead to a different outcome?
Yes, each case is unique. More robust service offerings tip the balance toward trading. But minimal changes likely won’t. It’s about proving that what you do genuinely resembles a trade rather than a simple investment holding to gain the desired relief.
If you need help to plan your taxes, please contact Tax Accountant at 0800 135 7323 or email info@taxaccountant.co.uk for expert advice.