Property income - or trade?

Property income - or trade?

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I have a client who owns a property that is arranged as a set of treatment rooms for various therapies, such as massage, Reiki & the like.  He pays for the utilities including the internet and provides flowers & furniture in the reception area.  He doesn't employ anyone but he has set up a website promoting the practice and also places adverts for the practice. 

His income comes just from the rents that the therapists pay him; they don't pay him any extra for facilities such as the website (nor can they opt out of that).  He doesn't provide insurance for the treatments nor does he get involved in the charge that therapists make for their treatments. 

My concern is that this is, in parts, beginning to look a bit more like a trade rather than income from property.  Has anyone else come across similar set-ups?  If so, has it been treated as property, trade or a split?

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By Montrose
11th Jan 2016 18:19

HMRC will press for it to be Sch A income

The particular services supplied by your client hardly constitute a trade. The analysis in Fry v Salisbury House Ltd is still applicable. Nor is this a 'business' for IHT purposes and does not qualify for Business Property relief.

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By Portia Nina Levin
11th Jan 2016 18:34

I disagree.

You might very well get this within George, meaning that there are separate rental and service elements. The service element (website, reception, atmosphere) appears substantial. See IHTM25279 and PIM4300.

You might even be able to argue that it is a trade, and the substance of the arrangement is that the "proprietor" is simply remunerating the therapy providers with a profit share equal to their income less a notional rent, given that the end result is a single "package" of trading activity.

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