A recent court decision, the Vigne case, has given a glimmer of hope for taxpayers hoping to qualify for Business Property Relief from inheritance tax. Business Property Relief (BPR) offers significant tax savings, often 100%, so it is obvious why taxpayers are keen to maximise this relief where possible.
The Vigne decision, upheld the claim for BPR even when the livery business in question was providing some (but not full) services to the horse owners. This has been decided despite previous decisions being rejected on similar grounds and may suggest a turning point in the future availability of BPR.
To maximise the availability of BPR, landowners running a business will need to have good evidence of the number of services they are providing to avoid HMRC arguing that they are simply holding an investment.
What result have previous decisions had for Business Property Relief?
BPR is not available for businesses which are ‘making or holding investments.’ It has been clear for many years that renting out a house or a field, will not qualify for BPR because it is simply holding land as an investment. At the other end of the spectrum, a hotel will qualify for BPR because whilst it effectively involves renting out rooms there are multiple services which a hotelier offers.
Over the last 10 years or so there have been a flurry of cases about the availability of BPR for businesses which sit in the middle.
There has not been much success for the taxpayer, with one case (Pawson) even going so far as to say that ‘the owning and holding of land in order to obtain an income from it is generally to be characterised as an investment activity.’ This has been criticised as a starting point as it suggests, at first glance, that a full time farmer would be carrying out an investment activity by taking an income from his land.
Similarly, cases involving furnished holiday lets and managed offices, even where it is clear that additional services have been provided, have failed to qualify for the beneficial relief on this basis.
The Vigne decision
In the Vigne case, the taxpayer was seeking to argue that because of the additional services provided, the business should qualify for BPR.
This claim was significant as it has long been known that livery businesses do not qualify for Agricultural Property Relief (APR) with the exception of a mixed business which sells crops. Therefore if BPR was not accepted there would be no relief from inheritance tax.
In the case, Mrs Vigne owned land upon which she ran her livery business. The court, at the first tier tribunal, talked about the different types of livery businesses akin to a hotel or solely rental. They explained that:
- At one end of the spectrum there is the full service livery. Much like a hotel for horses. Here the business looks after the horses around the clock and the clients simply pop in as and when they like. This type of livery would most likely qualify for BPR.
- At the other end of the spectrum is a ‘grass livery’ where a horse can stay in a field, but does not have a stable and a so called ‘DIY livery’ where the livery owner rents out stables and fields and the horse owners look after their horses on a day to day basis. These types of livery would not qualify for BPR.
- In the middle of the spectrum is a ‘part livery’, where the day to day care is shared between the livery owner and the horse owner.
In Mrs Vigne’s specific case, the livery business was described as being in between a DIY livery and a part livery. The services it provided included worming, hay feed during the winter, removing horse manure and daily checks of each horse’s health. A yard manager was employed and they worked for approximately 20 hours per week.
HMRC tried to argue that this only amounted to 10 minutes per horse per day and that the additional services above those of a DIY livery were minor.
The judge concluded that any ‘objective observer’ would have concluded that a business was being run from and on the land and would not have said that it was the business of ‘holding investments.’ They specifically referred to the quote above about land from which an income is derived being an investment activity and explained why they thought this was the wrong starting point. The first tier tribunal therefore concluded that the business did qualify for BPR.
What does this mean for other cases?
Whilst this is a positive result for many similar businesses, caution should be raised as BPR might not always be rewarded. For example, in the case of Pawson, the first tier tribunal gave a similar quote about an intelligent business seeing a furnished holiday let as being ‘far too active an operation’ to be regarded as an investment, so you would think that they were awarded BPR. However, whilst they were initially, HMRC later won their appeal about this decision. It will be interesting to see if HMRC appeal the Vigne decision.
For more information on Business Property Relief, please contact Vicky Timothy in our Personal Law team on 0161 475 1209.