Inheritance tax – Business property relief – Agricultural property relief – Personal representatives appealing against refusal of business property and agricultural property reliefs in respect of livery business on deceased’s land – Whether business being wholly or mainly that of holding investments – Appeal allowed in part
The deceased died on 29 May 2012 when she was the sole owner of approximately 30 acres of land known as Gravelly Way livery stables, Penn Bottom, Penn, Buckinghamshire. A DIY livery business was originally carried out on the land but, in 2008, services over and above those which would usually be included in a livery were added to the package offered, including the provision of worming products, providing the horses with hay feed during the winter months, removing horse manure from the fields where the horses were kept and undertaking a daily health check of each horse. The deceased did not reside on the land.
When inheritance tax (IHT) fell to be dealt with, the deceased’s personal representatives (the appellants) claimed business property relief on the ground that the asset constituted “relevant business property” as defined in section 105 of the Inheritance Tax Act 1984 and/or agricultural property relief on the ground that the asset constituted “agricultural property” within section 116 of the 1984 Act. The respondent Commissioners of HM Revenue and Customs issued a determination under section 221 of the 1984 Act to the effect that neither of those reliefs could be claimed, with the result that the sum of £308,990 was not treated as exempt and the aggregate chargeable transfer increased to £904,876.
The appellants appealed against those determinations. It was common ground that the deceased operated a business and that there was property that could properly be described as “business property”, associated with and necessary for the carrying on of that business. The issue between the parties was whether the business was a business which consisted mainly of holding investments. The respondents’ position was that if a livery business was being operated, which necessitated land being available for it to be viable, that was nonetheless the holding of an investment, and the entire business should be characterised as a business of holding investments. The appellants argued that the deceased did not operate an investment business nor did her business consist of “holding investments”.
Held: The appeal was allowed in part.
(1) The whole of section 105(3) of the 1984 Act had to be read and considered because it informed its own statutory construction in that “making or holding investments” had to be considered sui generis with “dealing in securities, stocks or shares, land or buildings…”. The Parliamentary intention was to exclude from the concept of relevant business property, securities or land (and possibly certain chattels) where the underlying intention was to hold them as an investment rather than as a component of and integral to some other business activity. The subjective intention of the property owner was at least capable of being one of the relevant considerations: McCall v Commissioners for HM Revenue and Customs [2009] NICA 12; [2009] PLSCS 120 followed.
(2) The essential question required the tribunal to begin by simply asking whether the deceased was carrying on a business, wholly or mainly, of holding investments. It was not correct to start with the preconceived idea that in any given situation, the business was wholly or mainly one of holding investments and then to ask whether there were factors that resulted in that preliminary view being altered. The proper starting point was to make no assumption one way or the other, but to establish the facts and then to determine whether, taken together, they indicated that the business was wholly or mainly one of holding investments: HM Revenue and Customs v Pawson [2013] UKUT 50; [2013] PLSCS 38 not followed. Commissioners of Inland Revenue v George [2004] STC 147 applied.
In the present case, the tribunal was satisfied that the Gravelly Way business was a genuine livery business which, from 2008 onwards, was developed as a recognisable livery business offering significantly more than the mere right to occupy a particular parcel of land. Any objective observer who had visited the site from 2008 to 2012 would have concluded that a business was being run from and on the land which did provide services to those who kept their horses on the land and that no properly informed observer could or would have said that the deceased was in the business of “holding investments”. That would have been a wholly artificial analysis. If the provision of services was inconsistent or incompatible with the operation of a business of “holding investments”, then it was highly likely that the proper analysis was that there was no business of “holding investments” which had to be sui generis with the rather obvious investment businesses identified in section 105(3) of the 1984 Act.
(3) The additional statutory word “mainly” did not require a consideration of whether any identified services or business activity contributed more to the income generated and/or profitability than the ability of a third party to occupy any part of the land. The central issue was whether the “business” was mainly one of holding investments. The reality in this case was the provision of enhanced livery, albeit stopping short of part livery, but nonetheless providing a level of valuable services to the various horse owners, which prevented it being properly asserted that the business was mainly one of holding investments. Thus, the appellant’s appeal succeeded under section 105 of the 1984 Act.
(4) The appeal failed in respect of agricultural property relief. The evidence given by the appellants was that although, from time to time, a hay crop was taken from the “hayfield” that had not happened in the two years prior to the deceased’s death. Looking at the matter realistically, an objective observer, on the basis of the factual situation as the tribunal had found it to be, would not properly consider agricultural activities to be carried on at or on the land. Equine activities were not usually characterised as agricultural. That was why Parliament had enacted section 115(4) of the 1984 Act so as to provide that the breeding and rearing of horses on a stud farm and the grazing of horses in connection with those activities did, for the purpose of the statute, amount to agriculture.
The appellants appeared in person; Mr Bracegirdle (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents.
Eileen O’Grady, barrister
