Recently the HMRC has lost an appeal over business property relief (BPR) after attempting to overturn a previous ruling.
Business property relief provides relief from inheritance tax on the transfer of business assets at a rate of 50 per cent or 100 per cent.
But representatives of the estate of Maureen Vigne took HMRC to the Tax Tribunal because it refused to allow this relief on the Buckinghamshire-based livery business she ran.
The business consisted of 30 acres of land which were used for a DIY livery business and the tax office had claimed it amounted to no more than simply letting land for the use of others and so was an investment business.
After a judge in the Tax Tribunal found against HMRC, it took the matter to the Upper Tribunal which has now also ruled against the tax agency.
The judges disagreed with HMRC’s barrister, Christopher McNall, that the livery was an investment in land rather than a business which offered its services first and foremost.
The ruling stated: “Mr McNall’s arguments appeared to be based on a submission that any business involving exploitation of land should, as a matter of law, be assumed to be wholly or mainly a business of investment unless the taxpayer could establish otherwise. This clearly overstates the position.
“There is no clear bright line between businesses which qualify for the relief and those that do not.
“We are satisfied that the [Tax Tribunal] applied the correct legal test and that the conclusion it reached was one which it was entitled to reach on the basis of the evidence before it.”
One of the key rulings in the previous judgement, which has now been upheld, was whether HMRC should start from the assumption that a business is one of simply holding investments and should instead make no assumption one way or the other.
In that ruling Judge Geraint Jones said: “It is not correct to start with the preconceived idea that in any given situation, the business is wholly or mainly one of holding investments and then to ask whether there are factors that result in that preliminary view being altered.
“The proper starting point is to make no assumption one way or the other, but to establish the facts and then to determine whether, taken together, they indicate that the business is wholly or mainly one of holding investments.”
The above demonstrates that HMRC are very tenacious in challenging estates and interpretations of the BPR legislation. It is essential that you seek advice at outset when contemplating using this relief and receiving ongoing reviews to ensure it remains a valid solution.
There are other solutions for mitigating the effects of Inheritance Tax and this article is just one of many. Watch out for my next article in this series.
As this is a specialist area of advice it is important to seek out this information from an appropriate independent financial adviser. Richmond House Group has this specialist knowledge and are always available to answer your questions.
Source: Financial Advisor online
John Merrifield.
Dip PFS, Cert (CII) MP.