There has been a steady trickle of case law over the last few years dealing with the concept of Business Property Relief (BPR) from inheritance tax.
Unfortunately for the taxpayer, the decisions in this area have been overwhelmingly in favour of HM Revenue and Customs (HMRC) and have served to narrow the scope of the relief.
The recent case of The Personal Representatives of the Estate of M W Vigne v HMRC examined when business property constitutes an investment, and when it does not, with reference to Mrs Vigne’s equestrian livery business. If not quite going so far as to give a break to the taxpayer, it does perhaps provide a small amount of breathing space.
Mrs Vigne owned 30 acres comprising grazing fields and stables. She used the property to run a livery business. On her death, her Executors claimed that the land should qualify for BPR. However, HMRC refused the relief.
Mrs Vigne’s Executors took the case to the First Tier Tribunal.
For land to be “relevant business property” for the purposes of applying BPR, there are two requirements that any business has to meet. Firstly, there must be property, and secondly, the property must be used as part of the business. HMRC did not dispute that Mrs Vigne’s property was relevant business property. That it existed was plain to see. Her business could not have been run without it.
However, where these two criteria are met, business property can still be excluded from relief if, looking at the business as a whole, business operations consist wholly or mainly of the making of investments.
It is commonplace to refer to a spectrum of businesses involving the use of land, with relief being available for businesses such as hotels and B&Bs, and being denied for those focussed on “landlord activities”. For those unfamiliar with the horsey world, the same spectrum exists when looking at livery businesses. This was recognised by the First Tier Tribunal, which grouped the types of livery into four broad categories depending on services provided.
According to the First Tier Tribunal’s classification, Mrs Vigne provided a “DIY” livery package (grazing and some stabling is provided but, in general, the horse’s owner will muck out and feed the animal daily), with some additional services including worming, provision of hay in the winter, removal of manure and daily checks on the horses. A yard manager was also employed.
HMRC argued that the DIY package was simply a rental of land, and that the additional services were not sufficient to change this. This follows the tide of recent case law, which suggests that a starting point when assessing a business should be a presumption that the holding of land is an investment, with the facts then being examined to see whether they are sufficient to rebut this presumption. On the back of this approach, HMRC concluded that Mrs Vigne’s business was one mainly of holding investments.
The judgement of the First Tier Tribunal in Vigne took a much more “back to basics” approach, returning to the meaning and purpose of the original legislation. It found that the intention of the legislation was to deny relief to businesses where the underlying intention was to hold the property as an investment and that, accordingly, the subjective intention and subsequent actions of the owner should be considered.
The First Tier Tribunal also examined the meaning of “investment” with reference to previous case law, and was persuaded by the argument that an investment asset would be one being held purposefully separate from the active work of the business.
Mrs Vigne’s customers demanded more than just the provision of land and stabling. They expected the livery yard staff to be actively involved in aspects of their horses’ care. The livery business assumed a lot of responsibility, including for the ultimate wellbeing of the horses on the land. Where a business was simply one of making investments, Mrs Vigne and her employees would not have taken on such responsibility.
The First Tier Tribunal found in favour or Mrs Vigne’s Executors, and BPR was granted.
A break for the taxpayer?
This is a helpful decision for the taxpayer generally. While the decision itself is fact specific, it demonstrates a more open minded approach by the Tribunal than has been seen in previous cases. It suggests that where a situation is not clear cut, evidence can be led as to the intention of the business owner in the use of their land. The idea that land should be presumed to be an investment unless it is proved otherwise is also challenged, perhaps paving the way for a more balanced approach to decision making in the future.
How we can help
If you have property which is used in a trading business which may qualify for BPR and would like to discuss this with us, please do get in touch. We would be happy to provide advice, or review your situation with a view to maximising the reliefs available.