Tax ruling sheds light on limits of business property relief

Farmers with diversified enterprises may be able to save thousands of pounds by shielding more of their business from inheritance tax after a ruling against HMRC over a case involving a livery stable.
Traditional farming businesses are most likely to be exempt from inheritance tax under agricultural relief and business relief, which shields people from paying 40% on all assets in an estate over the value of £325,000.
Relief for the diversified elements of the business can in some circumstances also be obtained via business property relief, but this protection relies on the business being “active” rather than “wholly or mainly making or holding investments”.
See also: Business Clinic: Is rollover relief repaid on death?
These include holiday accommodation and other businesses where it is clear that people are actively engaged in providing high levels of economic activity – for example, offering services such as catering.
The Upper Tribunal ruling of 31 October clarifies the scope of what meets the definition of active after HMRC lost an appeal against the estate of the late Maureen Vigne, who owned a livery business in Buckinghamshire.
Additional services
The tribunal upheld a ruling by a lower court (the first-tier tribunal) that the provision of additional services to horse owners in addition to grazing and stabling of horses meant that the business was not wholly or mainly one of holding investments.
Peter Harker, partner with accountancy firm Saffery Champness, said the ruling set an important precedent about the level of services and activities that need to be undertaken by a business to qualify for business property relief.
He said: “The tribunal found HMRC had failed to show that the purpose of holding the land as an investment had taken precedence over what was a business of keeping horses at livery.
“The outcome of this appeal has important implications, not just in the livery/equine sector, but also for furnished holiday let businesses where parallels have been drawn.”