BPR Developments

By | 2 August 2008

Issues of uncertainty

Recent cases before the Special Commissioners have dealt with two issues of uncertainty on Business Property Relief (BPR) claims for IHT purposes.

Business property does not qualify for BPR if the business consists wholly or mainly of dealing in securities, stocks or shares or land or buildings, or in making or holding investments (although there are some limited exceptions, in respect of market makers or discount house businesses carried on in the UK). There is an important exception in group situations, if a company’s business is wholly or mainly as the holding company of one or more companies whose business is not an excluded one (IHTA 1984, s 105).

Letting of land

It is not uncommon to find surplus land being let to farmers on short-term grazing licences, in the hope that it will be a business which qualifies for BPR. In McCall and Anor (Personal Representatives of McClean, dec’d) v Revenue and Customs Comrs (2008) SpC 678, property consisting of farmland, which was let for grazing under conacre (ie a temporary easement creating a licence to use land) or agistment (ie the letting of land for grazing) agreements in Northern Ireland was held to be enough to constitute a business within IHTA 1984, s 105(1) on the facts of the case. The Special Commissioner stated:

“On it’s own I do not believe that the mere letting of land under agistment arrangements for each season would constitute a business…” However, he added that what ‘tipped the scales’ towards a business in that case was extra work done in terms of tending the land.

However, that business was held to be excluded from BPR, on the grounds that it consisted wholly or mainly of making or holding investments, within s 105(3). The Special Commissioner considered that the business in that case consisted wholly or mainly of the making of investments, on the basis that:

“…the activities of the business consisted of the making available of its major asset to other persons for payment without the separate provision of any substantial other goods or services.” He added:

“The activities surrounding the letting (except perhaps the provision of water) were not so substantial as to constitute themselves a part of the business distinct from holding the land: this was not like a car hire business where income derives from the letting of a car but where the cleaning, servicing, insuring and dealing in the cars may be such a large part of what is done to say that it is not just a business of holding cars; instead the major part of what was done was letting the land and the other activities a necessary part of that or small in comparison.”

Whilst the letting of land does not necessarily constitute an investment business on the basis of the decision in McClean, the availability of BPR is likely to depend upon what other services are provided as well, and the extent of those services.

BPR on business or business asset?

Prior to the Special Commissioner’s decision in Trustees of The Nelson Dance Family Settlement v Revenue and Customs Commissioners (2008) SpC 682, it was commonly thought that the transfer of business assets (as opposed to a transfer of the business itself) did not qualify for BPR.

The Nelson Dance case concerned the transfer of some farmland with development value to the trustees of a family settlement. The trustees claimed BPR on the basis that there had been a transfer of value which resulted in a reduction in the value of ‘relevant business property’ within IHTA 1984, s 105. HMRC sought to disallow the BPR claim, but the trustees’ appeal was successful. The Special Commissioner held that BPR was due on the basis that “…all that is required is that the value transferred by the transfer of value is attributable to the net value of the business.”    

BPR is clearly a very valuable relief from IHT. If there are any BPR issues affecting your clients, please do not hesitate to contact Mark McLaughlin.