Green Door - What’s that secret you’re keepin’?....Door ajar for IHT Business Property Relief for Livery businesses, and slammed shut for holiday lets.
In the current climate, farm incomes are perhaps more under threat now than ever, with Brexit, BPS reform, commodity, and currency volatility. Continuity and stability of income is key, and accordingly to the 2016 Defra Farm Business Survey over 60% of UK farming businesses have diversified, generating on average 32% of total farm income. Increasing innovation and business ventures on farms are likely to see more challenges to BPR. Increasing values of land and property mean the tradeoff between income generation and liability for inheritance tax will require careful planning and assessment as these recent cases show.
Livery- BPR Success
Some good news for success in obtaining BPR for a DIY Livery enterprises in last month’s Vigne appeal case at the First Tier Tax Tribunal (15th August 2017).
Mrs Vigne passed away in 2012 owning 30 acres in Buckinghamshire used for a DIY Livery enterprise with stabling. In addition to the land, she provided additional services including daily health checks, provision and administration of worming medication, provision of hay and removal of manure, all of which the tribunal accepted as not usual for a DIY livery service and were provided to secure competitive advantage. A Business Plan, and planning permission for stabling, stores and yard manager accommodation (albeit refused) all assisted to evidence the intention to provide more than the usual DIY livery. The judgment passed; only two months later than the Ross case which we will come to below, with an entirely different outcome. In this case, the level of services provided left the Tribunal to conclude that in the round any objective observer who visited the site would decide a business was being run and that no such observer could have said it was simply a business of “holding investments”.
The Vigne case offers some good news to livery businesses’ with the BPR element aimed specifically at those providing a high level of ancillary services, to differentiate it from an otherwise rental activity. Though overall the notes of caution surrounding BPR and let Property remain. An additional point, although not the focus of the case, noted that should an Agricultural Property Relief claim been submitted, given its equestrian use the Appellant would have failed.
Holiday lets- BPR claim dismissed
The next case focuses on the activities of the Green Door Cottages Partnership, decided on Appeal at the First Tier Tribunal Tax Chamber (20th June 2017) between The Executors of the Estate of Mrs Marjorie Ross (deceased) and HMRC. The appeal was on the grounds that the original ruling did not allow for Business Property Relief (BPR) upon Mrs Ross’ two-thirds share of the Green Door Cottages Partnership, a Cornish business running and managing eight holiday cottages and two staff flats, and a further property in Weymouth
HMRC’s position is that the property in question is property of a business which mainly consists of investment in land and so does not fall within the definition of “business property”, but is instead property of a business which consists “mainly of making or holding investments”.
The main focus of the Appellants’ arguments is that the Green Door Cottages Partnership provided a holiday experience, and was not a simple rental transaction. The extensive services provided comprised in the “holiday experience” altered the character of the business from being one whose character is mainly an investment in land to one whose character is mainly in providing this holiday experience, and that of an active business where the land itself is a component part. This was supported by witness statements from former guests, and staff employed to assist with the running of the business with extensive examples of the services provided to demonstrate the level of service provided showing this to be in excess of the usual holiday let.
The level and quality of the services provided were accepted and recognised in the judgment, however, it was felt that, as in the Pawson Case (2013), the essence of business was for the guests to occupy the cottages for a specific period. The level of services were not such that the experience formed that of a holiday camp, and as such no matter how efficient the laundry service or how helpful the handyman, the character of the business was not changed. Coupled with the previous 2013 Appeal case of Pawson which was dismissed on similar grounds it is difficult to see how a holiday letting enterprise will on its own qualify for BPR.
Please don’t hesitate to contact us to discuss farming arrangements and potential inheritance tax implications affecting your Property.