Judgment summary
This is an appeal against a decision of the First-tier Tribunal (Tax Chamber) released on 24 October 2024, which found that shares in Fiveteam Limited owned by Mr Keith Beresford at his death were not relevant business property for business property relief purposes (1). Fiveteam owned 100% of Ninecourt Limited, whose main asset was 16 High Holborn, a six-floor commercial building in London (2).
Two floors (approximately 11,000 sq ft) were let on commercial leases, while the remaining four floors (approximately 21,000 sq ft) were used to provide serviced office facilities managed by Orega Management Limited as agent for Ninecourt under a serviced office management agreement (2). The FTT found that the business of Ninecourt was wholly or mainly making or holding investments, so business property relief was not available on Mr Beresford's death on 18 September 2018 (3).
The executors appealed on two grounds, essentially that the FTT erred in law in its factual finding that Ninecourt's business consisted wholly or mainly of making or holding investments, and that certain findings and inferences were not properly open to it on the evidence (Edwards v Bairstow) (30-32).
The Upper Tribunal (Judge Jonathan Cannan and Judge Amanda Brown KC) dismissed Ground 1 in its entirety but found one error of law under Ground 2: the FTT wrongly treated the supply of heating, electricity and air-conditioning as investment management activities (152). Because this error might have affected the FTT's conclusion on the character of the facility fee, the Tribunal set aside the FTT's decision and remade it itself (154).
On remaking the decision, the Tribunal concluded that, viewed in the round, a reasonable business person would consider the facility fee to be income from an investment, so the business of Ninecourt as a whole was mainly one of making or holding investments (161). Business property relief was therefore not available, and the appeal against HMRC's determination was dismissed (162).
Background
Mr Keith Denis Lewis Beresford owned 100% of the shares in Fiveteam Limited, which in turn owned 100% of the shares of Ninecourt Limited (2). Ninecourt's main asset was 16 High Holborn, a commercial building in London acquired in 2008 (2).
From 2010, two of the six floors (about 11,000 sq ft) were let to tenants on commercial leases for shops and offices, while the remaining four floors (about 21,000 sq ft) were used to provide serviced office facilities managed by Orega Management Limited as agent for Ninecourt under the Orega Management Agreement ("ORA") (2).
Orega's duties included seeking and accepting bookings, collecting amounts due, providing services to clients, managing the business, preparing management reports and employing staff (12). Clients paid a "facility fee" for access to specific offices and standard services, and a separate "contract services fee" for additional services such as meeting rooms, server space, postage, catering and photocopying (15-19, 23).
Mr Beresford died on 18 September 2018. HMRC issued a notice of determination that business property relief was not available in respect of the transfer of value associated with his Fiveteam shares because Ninecourt's business consisted wholly or mainly of making or holding investments under section 105(3) IHTA 1984 (3-4). The executors appealed to the FTT, which dismissed the appeal, and the FTT itself gave permission for a further appeal to the Upper Tribunal on two grounds (30).
Core dispute
The central issue was whether the business carried on by Ninecourt fell within the exclusion from relevant business property in section 105(3) IHTA 1984, namely whether it consisted wholly or mainly of making or holding investments (10). It was common ground that the rental activities on two floors amounted to holding investments, and the FTT found that the provision of additional services under the contract services fee was a trading activity (28).
The parties agreed before the FTT that if the income generated by the facility fee was found to derive from the making or holding of investments, then the business of Ninecourt as a whole would be wholly or mainly making or holding investments, and business property relief would not be available (126, 157).
The appellant argued under Ground 1 that the FTT misapplied the authorities, in particular Pawson, by treating owning and holding land to obtain income as generally an investment activity; that a building used for trade purposes cannot be held as an investment; that the facility fee, being paid for a package of services, was properly trading income; and that the FTT wrongly relied on the FTT decision in Demetriou and failed to apply the factors from Farmer (31).
Under Ground 2, the appellant argued that the FTT made findings and drew inferences not properly open to it on the evidence, including that clients acquired a fundamental right to use a specific room, that the facility fee conferred a right of "occupation", that the price differential between rental and serviced office floors reflected factors beyond services, and that most facility fee activities were "investment management activities" (32).
Court findings
The Upper Tribunal reviewed the authorities, including Desoutter, Tootal, Rotunda, Fry, Griffiths, George v HMRC, McCall, Pawson and Vigne, and derived a series of propositions on the meaning of section 105(3) (67). It found no presumption of investment activity arises from Pawson; Henderson J was simply describing a "starting point" consistent with George, and the FTT expressly disavowed applying any presumption (81-88).
On the significance of trading, the Tribunal held that Desoutter and Tootal do not establish that an asset used in any trade, however insignificant compared to investment activity, cannot be an investment asset; much depends on the nature and extent of the trade and the business must be looked at in the round (94-96). The Tribunal rejected the submission that a single business activity must be characterised as either wholly investment or wholly trading, agreeing broadly that where a business comprises more than one activity, the main activity must be identified (79).
The Tribunal held the FTT was entitled to infer that the primary element of the facility fee transaction was the use of a specific office, based on room numbers on invoices, secure fob access and pricing by floor area (126). It rejected the submission that a legal right of occupation was a prerequisite for investment characterisation, noting the test is what a reasonable business person would regard as an investment, not legal niceties of the interest granted (137-138). The Tribunal also upheld the FTT's findings on the price differential between rental and serviced office floors (142) and rejected criticisms concerning reliance on Demetriou and the Farmer factors (112, 119).
However, the Tribunal found the FTT erred in law in treating the supply of heating, electricity and air-conditioning as "investment management activities", since under George such additional services do not form part of property management regardless of whether their cost is included in a lease or licence fee (145-147). Maintenance of office equipment, by contrast, was properly found to be an investment management activity given the offices were supplied furnished and equipped (146).
Outcome
The Upper Tribunal found that the FTT's error in treating heating, electricity and air-conditioning as investment management activities might have affected its ultimate conclusion on whether the facility fee derived from investment or trading activity, and set aside the FTT's decision (152-154). Neither party sought remittal, so the Upper Tribunal remade the decision itself (154).
Remaking the decision on the basis of the FTT's findings of fact and its own conclusions on the appellant's challenges, the Tribunal found that although heating, electricity and air-conditioning were non-investment activities, this was not a sufficiently material feature to alter the character of what was provided for the facility fee, namely a licence to occupy an office within the Property (159-160).
Viewed in the round, the Tribunal concluded that a reasonable business person would consider the facility fee to be income from an investment, so the business of Ninecourt as a whole was mainly one of making or holding investments (161). Business property relief was therefore not available on the transfer of value associated with the Property under section 105(3), and the appeal against HMRC's determination was dismissed (162).
Major issues / areas of contention
- Whether the FTT erred in law by treating owning and holding land to obtain income as, in effect, a rebuttable presumption of investment activity, contrary to Pawson and Vigne (81-88).
- Whether an asset used to any extent in a trade can never be held as an investment for section 105(3) purposes, based on Desoutter and Tootal (90-96).
- Whether the facility fee, accepted as covering a package of services, should have been characterised as trading income rather than investment income (102-109).
- Whether the FTT wrongly relied on the subsequent FTT decision in Demetriou without giving the appellant an opportunity to comment (110-112).
- Whether the FTT failed to apply the relevant factors from Farmer (overall context, capital employed, time spent, turnover, profit) before reaching its overall conclusion (113-119).
- Whether the FTT was entitled to infer that a fundamental part of what clients acquired was the right to use a specific room in the building (124-131).
- Whether the FTT wrongly found that the facility fee conferred a right of 'occupation', and whether a legal right of occupation is a prerequisite for an activity to be characterised as investment activity (132-139).
- Whether the FTT was entitled to attribute the price differential between rental floors and serviced office floors to factors beyond the services provided (140-142).
- Whether the FTT erred in characterising most facility-fee-related activities, including the supply of heating, electricity and air-conditioning, as 'investment management activities' (143-151).