The Upper Tribunal has dismissed an appeal against a determination that shares in a serviced office company were not relevant business property in The Executors of Keith Denis Lewis Beresford (Deceased) v HMRC [2026] UKUT 00285 (TCC).

The deceased held shares in a holding company whose subsidiary owned a six-floor commercial building. Two floors were let on conventional commercial leases. The remaining four were operated as serviced offices, with clients paying a facility fee for the use of identified offices together with standard services, and separate contract services fees for additional services. The First-tier Tribunal found the facility fee was investment income and dismissed the appeal. Both parties had agreed below that the characterisation of the facility fee would determine the outcome for the business as a whole.

A significant strand of the appellant's case was that only income from the grant of a right of occupation can amount to investment income, so that a business which provides services on its own land, rather than granting occupation of it, falls outside the exclusion. On that analysis the authorities could be organised by reference to whether a legal right of occupation had been granted. The appellant relied on the cases of Rotunda, Fry and Griffiths.

The Upper Tribunal rejected that approach. Those cases, decided on the boundary between Schedule A and Schedule D, do not assist in distinguishing investment income from non-investment income. The test is what an intelligent businessman would consider to be an investment, and it does not depend on legal niceties of whether the user is granted a proprietary interest or exclusive possession. There is no anterior question as to the nature of the interest granted. Section 105(3) asks a straightforward factual question. The Tribunal also confirmed that the starting point identified in Pawson creates no presumption, but is simply a description of one end of the spectrum endorsed in George.

The Tribunal held that the First-tier Tribunal had erred in treating the supply of heating, electricity and air conditioning as investment management activities. In George, Carnwath LJ had held that property management does not extend to additional services provided to occupants, whether or not their cost is included in the rent.

The decision was accordingly set aside and re-made. On re-making, the Tribunal found those services were not a sufficiently material feature of the package to alter the character of what was provided for the facility fee, namely a licence to occupy an office within the property. Viewed in the round, the Tribunal concluded that the facility fee was income from an investment. The appeal was dismissed.

For those advising on serviced offices, managed workspace and similar flexible occupation models, the practical consequence is that the absence of a lease or of exclusive possession will not of itself take a business outside the exclusion. The decision also draws together ten propositions from the authorities which will provide a convenient reference point in this area. 

Bayo Randle appeared for the Respondents.

A full copy of the judgment can be found here.