Consisting of 278 sections and numerous other schedules, the Inheritance Tax Act 1984 does not entirely make for light reading and can often feel difficult to navigate.
Focus, however, should be placed upon section 105 if you or someone you know owns a business.
This section carves out the intricacies of Business Property Relief (BPR), which can be claimed upon assets deemed “relevant business property”. This includes, but is not limited to, “property consisting of a business or interest in a business”, together with “any land or building... used wholly or mainly for the purposes of a business”.
Section 105 of the 1984 Act recently came under the spotlight in The Estate of Maureen W. Vigne (deceased) v HMRC. This case centred on the deceased who owned a livery business with 30 acres of land. After her death, her legal representatives claimed BPR on the basis that the livery business was “relevant business property”.
The claim was rejected by HMRC, who felt there were insufficient activities or expenses of a business nature. The HMRC officer viewed the business mainly as holding investments, surmising that BPR was not applicable in the circumstances.
The issue narrowed down to whether the business consisted mainly of holding investments. If it did, BPR would not be applicable. The activities of the livery business were examined with a fine-tooth comb.
It was noted that the services of the livery business included (1) quarterly worming of the horses; (2) providing the horses with hay during the winter months; (3) mucking out the stables to keep the horses in good health and (4) checking the horses every day.
The legal representatives for the late Ms Vigne argued that the services provided were over and above the provision solely of a field for the horses to live in and to graze.
HMRC were of the view, however, that there were insufficient activities and expenses of a business nature. They argued that these activities were insufficient to constitute anything above simply “holding investments”. They relied upon factors such as hours worked by the yard manager, the profitability of the business and the labour costs incurred.
Ultimately upon appeal, the first-tier tribunal ruled in favour of the late Ms Vigne’s representatives. The tribunal was under no doubt that the business was a genuine livery business and offered more than simply the right to occupy a stretch of land.
It was held that the livery business was indeed “relevant business property” and could therefore benefit from BPR.
Unfortunately eligibility for BPR is not always clear cut, as demonstrated in this case. You may have a business which you do not realise could affect the way your estate is taxed upon your death. We would be delighted to offer inheritance tax planning advice and provide guidance in relation to the 1984 Act.
For expert advice on these issues, or other issues relating to inheritance tax and reliefs available, please contact us today.