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Where Taxpayers and Advisers Meet

Event Income - Property Income or Trading Income (Sch D)

Loriot
Posts:2
Joined:Thu Apr 06, 2017 10:17 am
Event Income - Property Income or Trading Income (Sch D)

Postby Loriot » Thu Apr 06, 2017 12:04 pm

Income from private house used as an Event Venue - "Property Income" or "Trading Income"

Do readers know of any cases or decisions, or guidance in relation to any comparable "events businesses", that which support the case for a particular tax treatment of the following?
The owners [technically occupiers] of a private residential property make it available ["run it as a venue"] for private dining, business meetings and wedding events. The events can be for any duration, part of a day or longer than a week. The owners occupy, manage & maintain the property, and ensure it fulfills all fire-safety standards and have registered it as a venue for civil marriage. The guests are provided with information about / recommendations for caterers, taxis & chauffeurs and marques, bands and DJs and flower arrangers. The owners can/will [do sometimes] arrange all services the guests require, as a package. The guests can also stay overnight in [have exclusive use of] the property.
This seems to fall into a "grey area" - whether income from land / property is to be treated as "property income" or "trading income".

The owners believe that they are trading - the frequency of the events [although never more than 1 wedding a week{end}], and the professionalism of the management is adequate to constitute a "business" and the business satisfies many of the "badges of trade" {BIM20205}. However, it is clear that HMRC tend to take the view that "income derived from rights of property in UK land is very unlikely to be trading income except in a hotel or guesthouse activity".
But, the business is similar to that offered by many hotels
The business competes with many hotels for similar business, and the owners believe that this supports the case for 'trading'. However it might be equally reasonable to assume that a person who allows others to use their property for weddings might be treated as though they were receiving "income from letting others use land" as the example, where a film crew pays to film inside a house or on land {PIM1051}.

A recently reported tribunal case Julian Nott v Commissioners for HMRC [2016] suggests that it is increasingly difficult to satisfy the definition of a "trade". In the case the First Tier Tribunal is reported to have considered whether income from letting furnished holiday cottages was "property income" or "trading income". It found, among other matters that:
  1. 1) it did not regard the legal basis on which customers occupied a property or the length of their occupation to be material factors in determining whether there was a trade; and
    2) for the services provided to displace the presumption that the income was property income, the services provided needed to be sufficiently substantial to convert what was being sold into a package of services of which the accommodation enjoyed by guests or customers is only a part.
HMRC reportedly submitted that they in fact ask two questions to identify the true derivation of income.
  1. 1) "what is the activity giving rise to the payment?" and
    2) "what are customers paying for ­the use of the land or a package of services forming part of a trade?”
As a result of this case it appears that there is an overwhelming presumption is that income derived from property is "property income" (unless substantial services are provided) and that the owners, in this case, should probably be declaring their income as "property income" not as "trading income".

Any [closely] comparable businesses [involving private estates, etc] known by any readers?

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Event Income - Property Income or Trading Income (Sch D)

Postby maths » Fri Apr 07, 2017 7:26 pm

1. On the basis that all that the owners do is to provide premises to be hired out for events and hand out contact names for flower arrangers etc then the income is property income.

2. If, however, the owners offer to not only hire out the property for hire but also organise the various services as part of a package then this would seem to constitute a trade.


In short, it seem that the owners receive property income under 1 above and, entirely separately, carry on a trade under 2 above.

Loriot
Posts:2
Joined:Thu Apr 06, 2017 10:17 am

Re: Event Income - Property Income or Trading Income (Sch D)

Postby Loriot » Tue Apr 11, 2017 6:18 pm

Well yes!
All current guidance says that if you let a property it is property income and if you provide substantially a package which constitutes a "bundle of services" it may be a trade.
It is clearly a matter of degrees and the issue in hand is trying to assess the likely treatment if:
a) despite offering a wide range of services, most customers are free to choose and choose to organise their own marque, catering, wine supplier and entertainment;
b) the only location offered as part of the business's 'wedding services' is the owner's property; or
c) the services are somehow considered 'trivial' relative to the rental value of property or simply "such services as any property owner might provide to incentivise people to choose their property as a venue".
The issue of income classification is relatively trivial until considering loss relief or hold over relief, where it becomes important that the business is treated as 'trading', not just a recipient of 'property income'.
Is any reader familiar with any case or guidance which is in point? The recent case appears to be a hardening of the position towards a presumption of property income where the principal reason for a transaction is use of a property.


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