Inheritance tax – Transfer of value – Business property relief (BPR) – Agricultural land transferred to respondent trustees by deceased – Liability of respondents to inheritance tax on transfer of value following death of deceased – Agricultural relief available on agricultural value of land – Whether BPR also available on additional development value – Whether value transferred attributable to value of relevant business property – Section 104 of Inheritance Tax Act 1984 – Appellant commissioners refusing BPR – Special commissioners allowing it – Appeal dismissed
In 2002 or 2003, the deceased executed declarations of trust by which agricultural land and cottages that he owned became held by the respondent trustees on the trusts of a family settlement. Prior to the transfer, the deceased had farmed the land. The transaction amounted to a “transfer of value” within the meaning of section 3 of the Inheritance Tax Act 1984. On the death of the deceased in 2004, an issue arose as to the respondent’s liability to pay inheritance tax on the transfer. It was agreed that the transfer qualified for agricultural relief under the 1984 Act, limited to the agricultural value of the land. However, the land also had development value over and above its agricultural value. The appellant commissioners maintained that the respondents were liable to tax on that additional value; the respondents contended that they were entitled to business property relief (BPR) under section 104 of the Act. The appellants issued a notice of determination to the effect that none of the value transferred was “attributable to the value of any relevant business property” within the meaning of section 104 such that BPR was not available.
On appeal, the special commissioners determined, as a preliminary issue, that the respondents were entitled to BPR. The appellants appealed. The central issue was whether the relevant transfer of value associated with the transfer of the land was attributable to the value of the deceased’s farming business, in which case BPR was available, or to the value of the land, in which case it was not. The respondents contended that since, before the transfer, the land had been an asset used in the farming business, the value transferred could properly be characterised as being attributable to the value of the farming business, even if it could also be said to be attributable to the value of the land. The appellants argued that a choice had to be made between the two characterisations and that theirs was the proper one.
Held: The appeal was dismissed.
Section 104 did not require a choice to be made between attributing the value transferred to the value of the land or to the value of the business, as mutually exclusive categories. Otherwise, a complex and uncertain evaluative exercise would be required to decide whether to attribute the value transferred to a business or to property used in that business. Parliament had not intended any such additional layer of complication and uncertainty in the operation of the Act. In applying the BPR provisions, the simple issue in each case was whether the value of the transferor’s relevant business property had decreased as a result of the transfer of value; the issue was not as to the nature or value of the assets transferred. Accordingly, if it were possible to characterise the value transferred as being attributable to the value of the business as well as to the value of the land, BPR would be available. The wording of section 104 directly cross-referenced the simple test laid down in section 110 for determining whether the value transferred was attributable to the value of the business; that test could readily be applied before and immediately after a disposition, to give a change in value attributable to a business that worked in harmony with the basic test in section 3(1). Such a construction provided simplicity and certainty, enabling citizens to identify when tax might be charged and when BPR would be available and to plan their affairs accordingly. It was also consistent with the loss-to-donor principle enshrined in the Act, by which value was calculated by reference to the loss to the transferor not the value in the hands of the transferee, and which directed attention to changes in the value of the transferor’s estate not to what happened to the property in the hands of the transferee. Moreover, it better met the rationale for BPR of encouraging the use of assets in a business. The detailed provisions of the Act for collecting the tax did not outweigh those factors.
Christopher Tidmarsh QC (instructed by the legal department of HM Revenue & Customs) appeared for the appellants; William Massey QC (instructed by Payne Hicks Beach) appeared for the respondents.
Sally Dobson, barrister
