The appeal decision of the Upper Tribunal in the case of The Personal Representatives of the Estate of M W Vigne v HMRC has been hotly anticipated by those with an interest in the application of business property relief (BPR) from inheritance tax.
The First-tier Tribunal Decision
Mrs Vigne owned 30 acres of grazing fields and stables, from which she ran an equestrian livery business. Following her death, H M Revenue and Customs (HMRC) rejected her Executors’ claim that the land should qualify for BPR, and her Executors took the case to the First Tier Tribunal.
It was not disputed by HMRC that Mrs Vigne’s property was “relevant business property” for the purposes of BPR. However, for BPR purposes, a business must also be considered to be “wholly or mainly” one of carrying out trading activities, rather than simply holding land as an investment. The spectrum of businesses involving land ranges from the provision of luxury hotel facilities at one end, to long term lets with little landlord involvement at the other. For grey area cases such as Vigne, it must be decided where on this spectrum the business falls.
HMRC argued that the DIY livery package provided by Mrs Vigne was simply a letting of land and could therefore only be deemed to be an investment business. Mrs Vigne’s Executors argued that the additional services provided (providing and administering worming products when required; provision of hay in winter; removal of manure; daily checks on horses; and the employment of a yard manager) was sufficient to tip the scale and classify the business as one carrying out trading activities.
After examination of the facts, and previous case law, the First Tier Tribunal determined 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. HMRC’s presumption that land constituted an investment unless it is proved otherwise was also challenged. The First Tier Tribunal found in favour of Mrs Vigne’s Executors.
HMRC then appealed the case to the Upper Tribunal.
The Upper Tribunal Decision
It was not open to the Upper Tribunal to overturn the decision of the First Tier Tribunal unless it found that the First Tier Tribunal (i) failed to apply the correct test; or (ii) reached a decision that could not be defended based on the facts of the case.
The Upper Tribunal was satisfied that the correct test had been applied to the case, and went so far as to say that HMRC’s position – that there was a presumption that land constituted an investment unless it was proved otherwise – was not correct. The neutral starting point advocated by the First Tier Tribunal in its decision was held to be right, and the subjective intention of the business owner was deemed to be helpful as an indicator where cases fall within the grey area of the spectrum of business types.
Whether the decision of the First Tier Tribunal could be defended on the facts of the case brought focus very much to the nature of the extra services provided. Indeed, it was submitted for Mrs Vigne’s Executors that some of these services very much went against the idea that the business was one of investing land. For example, the removal of manure was required for the success of the business to improve the palatability of the grass for the horses and prevent excessive build-up of manure. It was argued that had the landowner simply been attempting to increase the value of the land, the manure would have been left and spread as fertilizer.
In reaching its decision, the Upper Tribunal made it clear that the question was not whether it or another Tribunal would have come to a different conclusion than that reached by the First Tier Tribunal. The question was only whether the First Tier Tribunal’s decision was defendable, or whether it was so fundamentally flawed that it had to be overturned.
On this narrow test, the Upper Tribunal confirmed the decision of the First Tier Tribunal.
What does this mean?
The decision of the Upper Tribunal can only be helpful to the taxpayer. The ability to lead evidence as to the subjective intention of the landowner could be very helpful in other grey area BPR cases. This, together with confirmation that there is no presumption that the holding of land is an investment, is step away from the somewhat rigid findings in other recent BPR cases.
However, it should be noted that the decision in Vigne does not mean that satisfying the BPR test has become easier. The tone of the Upper Tribunal’s decision is very much to the effect that had it been responsible for the initial ruling, then based on the facts presented it may well have found in favour of HMRC.
How we can help?
The key thing to take away from the Vigne case is that BPR can be available in these “grey area cases”, but that careful and planned management of the business, together with detailed analysis, thorough preparation and the clear presentation of a compelling case, is necessary to secure it.
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.