Rental properties – business or investment?

In a recent case a taxpayer successfully contended that her letting of property was a business.

The individual had incorporated her rental business and claimed roll over relief to defer capital gains tax.  HMRC did not agree that the letting was a business and raised an assessment for the gain on the property transferred.

The Upper Tribunal considered the activities carried out by the taxpayer in relation to the property, separated into 10 flats, spending approximately 20 hours per week on maintenance, management, etc.  It had to decide whether:

“the activities were a ‘serious undertaking earnestly pursued’ or a ‘serious occupation’, whether the activity was an occupation or function actively pursued with reasonable or recognisable continuing, whether the activity had a certain amount of substance in terms of turnover, whether the activity was conducted in a regular manner and on sound and recognised business principles and whether the activities were of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them.”

The Tribunal decided that the activities undertaken were sufficient in nature and extent for them to qualify as a business for the purpose in that they went beyond those a passive investor would undertake.  In those circumstances the rollover claim was allowed.