IHT Business Property Relief – Investment or not

At first sight, it seems that the legislation governing IHT Business Property Relief is widely and generously worded. The relief is available for any type of business, other than those excluded by s105 (3) IHT Act 1984. Notoriously, this excludes from relief a business which consists “wholly or mainly of making or holding investments”. Case law confirms that a business which consists of letting property and receiving rent will be regarded as an investment business, even if the owner actively manages the property. The essence of the property investment business is that the owner is paid by a tenant or licensee for the use or occupation of the property. Sometimes, of course, what are admittedly investments may be held as part of a business, which is not “mainly” an investment business, in which case the entire business will qualify for relief. This feature of Business Property Relief has proved helpful to farms (Farmer v IRC [1999] SPC 216) and rural estates, (HM Revenue & Customs v A M Brander [2010] UKUT 300), where tribunals have accepted that a number of quite diverse activities are being carried on by a single business. However, where the diverse activities are directed towards a single objective, the test may be much more “all or nothing”, and in practice the issue is going to be whether the business consists wholly of making or holding investments. Two recent First-Tier Tribunal cases provide an interesting contrast. Ross v HM Revenue & Customs [2017] UK FTT 507 (noted in the July 2017 issue of Trusts & Estates) concerned furnished holiday lettings. Notwithstanding the provision of a high level of services to the customers, the taxpayers were denied the relief. By contrast, in Vigne Deceased, Personal Representative of the Estate of v Revenue and Customs [2017] UKFTT 632 (noted in ‘From the First-Tier Tribunal’ on p. 5 below) the tribunal allowed the taxpayer’s appeal and held that a horse livery business did qualify for the relief.