2nd property investment – part of business

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    I have customer who is a self employed financial advisor – not a problem.

    However….he owns 15, yes 15 properties that are rented out. He has mortgages on all of them. Some of them are in negative equity, some of them are not. He had sold the previous family home in order to put deposits down on the properties mentioned.

    He has advised that he bought these properties as an investment for his children. Because of this, we have therefore looked into the value of the properties, and after deducting 10% selling costs and outstanding mortgage, we have treated the balance as capital – consequence excess capital.

    Before this guy appeals – which he will do, I need to ensure the above is the correct action. Surely, by owning 15 properties he must be running it as a business? Or is it because he has stated he has bought them as an investment for his children enough for us to look at the capital only?

    With 2nd properties still an area for discussion and confusion, would appreciate some help.


    R(FC) 2/92 and CH 4258/2004 may help.

    In R(FC) 2/92 Commissioner Goodman said “it cannot be said that the carrying of a business is constituted by the ownership by an individual of a tenanted house, the collection of rent, the execution or repairs and the carrying out of other landlord’s duties.” He went on to agree with the tribunals decision that the appellant’s second home was not a business asset but an investment which fell to be treated as capital. In CH 4258/2004 Commissioner Levenson considered a couple who were running a retail business but rented out three flats above their shop. He agreed with Commissioner Goodman and added that “there would come a point where a tribunal would be entitled to find that the scale of the operation would make such activities a business, but the facts of the present case come nowhere near that point. The tribunal was correct to find in effect that the 3 flats were not assets of any business in respect of which the claimant was engaged as a self-employed earner.”

    15 properties is obviously pushing it a bit… I think it will depend on how he actually manages the properties. How much time does he spend undertaking landlord duties? Does he have an agent? How does he declare the rental income to HMRC – as part of his self-employed business or as personal income?

    Kevin D

    If the properties were purchased as investments [b:7d5056ba53]for his children[/b:7d5056ba53], my view is such properties are a personal investment and do not constitute the assets of any business. As such, they fall to be taken into account. Further, any individual investment with negative equity cannot be offset against any separate investment with a positive value.

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