R K Patel v J R Maidment

Mr R R Patel appeals against an amendment to his self assessment for the year ended 5 April 2001. There are two issues still outstanding, the rate of taper relief on the capital gain on the sale of a property used for letting, and whether a loss on the letting can be set against other income. Mr Patel appeared in person; Mr R G Richards appeared for the Inspector.

There was a statement of facts not in dispute as follows

I also heard evidence from the Appellant.

The Appellant contended that as the letting of the property was taxed as a business he was entitled to the business asset rate of taper relief on the sale of the property, and that a loss on the letting could be set against other income. Mr Richards contended that, while the letting of the property was a business, it did not qualify for business taper relief and the loss could not be set against other income because it was not a trade, and secondly the conditions for its being furnished holiday lettings were not satisfied with the result that it was not deemed to be a trade.

Schedule A taxes “the annual profits arising from a business carried on for the exploitation, as a source of rents or other receipts, of any estate…in or over land in the United Kingdom.” (section 15 Taxes Act 1988). It is common ground that we are dealing here with a business. A Schedule A loss may only be carried forward and set against other Schedule A income, not set against other income (section 379A Taxes Act 1988).

For the purpose of taper relief “the asset was a business asset at that time [i.e. any time before the disposal] if at that time it was being used, wholly or partly, for purposes falling within one or more of the following paragraphs (a) the purposes of a trade carried on at that time by that individual or by a partnership of which that individual was at that time a member….” (paragraph 5(2) Schedule A1 Taxation of Chargeable Gains Act 1992). Confusingly therefore business taper relief does not apply to all business assets, but (at least in this respect) to trading assets.

Mr Richards referred me to the statement of Vinelott J in Griffiths v Jackson [1983] STC 184 at 193-4:

“It is a peculiar feature of United Kingdom tax law that the activity of letting furnished flats or rooms, while it may be a business and, in this case, a demanding and time-consuming business, is not a trade.”

I agree that this is the law and hold that, while the Appellant carried on a business, he did not carry on a trade. Accordingly he is not entitled to business taper relief or to set losses against other income.

The next issue is whether the letting business is nevertheless deemed to be a trade by qualifying as furnished holiday lettings. If it does so qualify, it is treated as a trade both for loss relief (section 503(2)) and for business taper (section 241(3) TCGA 1992). Section 503 of the Taxes Act 1988 provides: “…a Schedule A business which consists in, or so far as it consists in, the commercial letting of furnished holiday accommodation in the United Kingdom shall be treated as if it were a trade the profits of which are chargeable to tax under Case I of Schedule D…” Section 504(3) explains the meaning of holiday accommodation:

“Accommodation shall not be treated a holiday accommodation for the purposes of this section unless—

(a)

it is available for commercial letting to the public generally as holiday accommodation for periods which amount, in the aggregate, to not less than 140 days;

(b)

the periods for which it is so let amount in the aggregate to at least 70 days; and

(c)

for a period comprising at least seven months (which need not be continuous but includes any months in which it is let as mentioned in paragraph (b) above) it is not normally in the same occupation for a continuous period exceeding 31 days.”

There is one factual dispute about the application of these conditions. The Appellant produced a schedule of lettings, which was the best he was able to do on account of his illness. He said that he would not be able to improve on this if given more time and so I must take it as it is even though it is possible that the facts may be more favourable to the Appellant. Mr Richards very helpfully summarised the effect on the schedule on the three conditions required for it to be a holiday letting, separately on his and on the Appellant’s contentions. The only time where they differ in the final result is in relation to unit D3 where on the Appellant’s contention following a gap in the records from 6 April 1999 to 24 September 1999, Samira Demir occupied it from 25 September 1999 to 5 February 2000 and it was then unoccupied from 6 February to the sale on 15 June 2000. The Appellant contended that this was a holiday letting. If the letting was for a holiday it qualifies under all three heads, but if it was letting to a student it fails heading (b). Samira Demir signed the Appellant’s form, which I assume is something signed when applying for a tenancy, on 1 October 1999 saying that she was studying political science at the University of Luton on a course expected to last until 7 February 2000. The Appellant contends she was on an exchange programme and so this counts as a holiday let. It seems to me that she was a student who for some reason (presumably that she was on an exchange programme) stayed for less than a whole academic year, and so I find that this was not a holiday letting. Accordingly the conditions for a furnished holiday letting were not satisfied for any of the units. I accept the correctness of the schedules prepared on Mr Richards’ contentions. This means that the letting is not deemed to be a trade and the conclusion I have reached above applies.

Accordingly I dismiss the appeal and determine the self assessment for the year ended 5 April 2001 in the agreed figure of £8,058.50. As stated above it is agreed that the decision in this appeal will also determine Mrs Patel’s appeal.