Inheritance Tax – Business Relief – Recent Cases

For most agricultural businesses there are two types of relief that are available for Inheritance Tax; Business Relief and Agricultural Relief. There have been a number of recent cases relating to Business Relief and how it is applied to different types of business, and which demonstrate that it is not always easy to ascertain which would apply to your business situation.

The case of the Executors of Marjory Ross v HMRC shows that holiday homes do not count toward the Business Relief unless it can be proven that it is operated as a hotel business and not a self-contained holiday let investment business. This can be difficult to prove, as in the Ross case a long list of additional services was provided by the neighbouring hotel, and although the appellant paid for these additional services to be provided to their guests, it was considered insufficient evidence to prove they were operating a hotel rather than holiday lettings.  The guest had their own property and could, if they so wished, have no contact with the hotel from check in to check out.

The case of Vigne v HMRC looks at whether a DIY livery business which offered additional services such as worming and winter feed was an investment business is not. It was decided that because the livery business provided a substantial service to the occupants, it was not wholly an investment business, and therefore qualified for Business Relief. The appellants were providing checks on the horses daily, providing worming and feed, and every service from DIY livery and grazing to full care of the animals.

This raises an interesting question as to the fact that in the first case, despite the fact that the appellant provided services, the business was still considered an investment business and therefore not eligible for Business Relief, however in the second case, the appellant provided services and was considered not to be an investment business and was therefore eligible for Business Relief. It would therefore seem that it is not always straight forward when considering if a relief will apply to your business and its assets.

Businesses would be wise to always ensure they consider carefully the effect of any diversification enterprises on their future tax planning.