In the recent case between the Personal Representative of the Estate of M W Vigne Deceased v HMRC 2017, the First-tier Tribunal (FTT) has held that a livery stable business did not consist wholly or mainly of making or holding investments and so qualified for business property relief (BPR).
BPR is when a deceased’s business is either exempt from inheritance tax (IHT) altogether, therefore passes to the beneficiaries without any liability to IHT or any IHT which is due is reduced by 50%. In order to qualify for BPR at 100% relief or at 50% relief, certain conditions around the type of business the deceased operated need to be met.
Businesses which hold investments, do not qualify for BPR therefore the value of a business of that nature will still form part of the deceased’s estate and be subject to IHT if it exceeds the nil rate band. In this case, HMRC had argued that the livery business was simply the land owner letting or licensing their land for the use of others (the horse owners) and so should be characterised as an investment business.
The estate maintained that the business was significantly more than the mere right to occupy a particular piece of land, as it also provided valuable services for the benefit of the horse owners, such as health checks of the horses, providing them with hay, providing worming product and removing manure from the fields.
The FTT accepted this argument and was satisfied that any objective observer would have concluded that a business providing services to those who kept their horses on the land was being run on the land and that no properly informed observer could have said that the deceased was in the business of “holding investments”.
The FTT stated the correct approach to assess if a business qualifies for BPR is to establish the facts of each particular case and then determine whether they indicate that the business is wholly or mainly one of holding investments.
This case is important as it sets out the criteria HMRC should adopt when evaluating whether a business is an investment business or not. It will also be positive news for other similar types of businesses and a case where we can advise our clients more accurately when analysing the availability of BPR on businesses a deceased owned.