For those interested in tax statistics: HM Treasury’s “estimated costs of the principal tax expenditure and structural relief’s”.

Interesting to see that the three inheritance tax associated reliefs all show an increase.

Relief for charitable donations increased to £500 million, agricultural property relief increased to £385 million and business associated reliefs to £415 million.

More on this can be found here.

The First-tier Tribunal has held that a deceased businessman’s trading estate management company did not qualify for inheritance tax business property relief as its activities were predominately investment related.

The business owned a plot of land with a disused factory which had been converted into a trading estate with units rented for light industry and offices. As well as letting the land, the family managed the site and provided various facilities for those on the site including electricity, fax services, free parking, a full-time manager on site and a forklift truck and use of a full-time driver.

This is from the report of the decision of the tribunal:

“The non-investment services provided by the Company include the  forklift truck service and the provision of office type facilities. We do not consider that those additional services predominate when considering the activities of the Company as a whole. Even if we were to take out the Burdens side of the business, the real nature of the business remains an investment business exploiting the land by granting tenancies and licences. Most of the income from additional services relates to re-charges for electricity, telephone and postage. The income from the other additional services is very modest compared to the licence fee income. Considering the facts by reference to the nature of the activities and the income produced by those activities puts the Business Centre well towards the investment end of the spectrum.”

The full report can be found here.

Trustees of David Zetland Settlement v HMRC [2013] UKFTT 284 (TC)

The First-tier Tax Tribunal has denied inheritance tax business property relief on a block of office lettings owned and managed by a trust.  The main reason given was that a commercial letting is mainly an investment rather than a business even though many of the services provided were over and above what would normally be expected under a tenancy. 

The decision shows how difficult it is to persuade a tribunal that let property is not mainly the holding of an investment.  

The report from the First-tier Tax Tribunal can be found here. 

Pawson deceased v HMRC 2012 UKFTT 51 (TC)

The executors of the late Nicolette Pawson are launching a fighting fund to take their case to the England and Wales Court of Appeal, following their defeat by HMRC at the Upper tax Tribunal last month.

The case turns on whether furnished holiday lets are eligible for business property relief from inheritance tax.

“Mr Justice Henderson decided that the services provided ‘were all of a relatively standard nature [with] nothing to distinguish it from any other actively managed furnished letting business of a holiday property’.”

The Upper tax Tribunal decision can be found here, my earlier blog on this can be found here and an excellent piece from the STEP journal on this can be found here.

Pawson deceased v HMRC 2012 UKFTT 51 (TC)

The First-tier tax Tribunal has ruled that a property used as a holiday cottage qualifies for inheritance tax business property relief (BPR).

This case has generated a lot of interest as HMRC has delayed a number of similar cases pending the outcome of this one.  It will be interesting to see if HMRC decide to appeal this decision.

For those interested in how the legal teams interacted prior to the hearing I refer you to paragraphs 3 to 9 of the decision.  Fascinating.

HMRC questioned:

(1)  whether the property in question qualified to be treated as “relevant business property” and (2) was it used in the operation of a business for “gain”.  Section 105 IHTA 1984.

HMRC also argued that:

Even if the use to which the property had been put amounted to the operation of a business in principle, and for gain, it was to be excluded from the term “relevant business property” by reason of section 105(3) IHTA 1984 on the basis that the business consisted wholly or mainly of “holding investments”.

The main findings of the Tribunal were:

1.  The exploitation of the property in question as a holiday cottage amounted to the operation of business.

2.  The business was conducted with a view to gain even though it was not always profitable.

3.  An intelligent businessman would not regard the ownership of a holiday letting property as an investment due to the need to constantly find new occupants and to provide servcies unconnected with and over above those needed for the bare upkeep of the property.

The full judgement is available here.