Can a landlord ever achieve BPR for IHT…….

 In Tax, Trusts

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Can a Landlord ever achieve BPR for IHT?……in the light of The Trustees of David Zetland Settlement v Commissioners for HMRC [2013] UKFTT 284?

Business Property Relief (BPR) from Inheritance Tax (IHT) is relied on by many to reduce the value of their asset to potentially zero to establish a low or no tax charge on the transfer of the asset or its assessment as part of the assets in a relevant property settlement. Since 1999 various cases have tried to establish a definition of what might be ‘the holding of wholly or mainly investment assets’ since such businesses are denied BPR in entirety. This case provides further clues as to what is or is not an investment business in the context of the ownership of land by the business.

The facts

A settlement created on 22 September 1987 holds a mixture of assets including the leasehold interest in Zetland House, divided into many units let on short leases to mostly media and technology start-up businesses; two ordinary shares in Avidpride Ltd, which owns a freehold property divided into 20 units let to commercial tenants and a car park; and one share in Mainlegion Ltd which owns the freehold to Zetland House.

The trustees provided additional services to their tenants at Zetland House including provision of equipped conference rooms for hire; a mail room, reception and the services of porters; Staff of 7 to 8 full time and 4 part-time; Café; Communal events such as summer barbeques, Christmas parties where free food and drink are provided; Internet services; Bicycle stands; Project management – for undertaking approved building works such as installing air-conditioning; Cleaning; 24 hour security; Gym & hair salon.

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The background to this case was the fact that a ten year anniversary under the relevant property regime fell on 22 September 2007 and details of the assets comprised in the settlement immediately before that date were returned to Her Majesty’s Revenue & Customs (HMRC) which included a claim for 100% BPR in respect of the settlement’s ownership of Zetland House and its shareholdings in Avidpride Ltd and Mainlegion Ltd.

HMRC rejected the claim for BPR on the basis that the business of the settlement was excluded by s.105(3) IHTA 1984 as being a business which consisted mainly of making and holding investments and dealing in land and buildings.

The law

The case provides a comprehensive summary of the statutory provisions and case law on the subject with particular reference to the recent leading cases of IRC v George [2003] EWCA 1763 (the multi-faceted caravan site case which found in favour of the taxpayer) and HMRC v PRs of Pawson decd [2013] UKUT 50, (a furnished holiday letting case, which found in favour of HMRC).

The legislation is clear that a business or an interest in a business on the one hand and unquoted shares on the other qualify on a separate basis for BPR purposes under s.105(1)(a) and s.105 (1)(bb) IHTA 1984. As such the Tribunal considered the unquoted shares in Avidpride Ltd and Mainlegion Ltd as separate businesses and thus whether the business carried on by each company qualified for relief.

It was agreed that:

  • in order to get a flavour for the nature of a business it was appropriate to look back over five years  – Martin v IRC [1995] STC 5
  • The ‘relevant test’ is not the degree or level of activity but rather the nature of the activities which are carried out – Pawson
  • The Tribunal must look at the business ‘in the round’ with no one factor being determinative – George

The decision

The Tribunal acknowledged that the trustees were providing significant additional services BUT the conclusion was that the non-investment side seemed incidental to the core business, perhaps predominately on the quantitative side – that is, the sums from rent were so large and the money from the additional services so small that the services could only ever represent a tiny percentage of the overall income of the business.

The purposes of the activities, said the Tribunal, were largely to improve the fabric of the building and to keep the tenants there and to keep occupancy rates high through creating a kind of community within the building. They were designed to maximise income through the use of short term tenancies.

The Tribunal decided similarly in respect of the work of the companies Avidpride Ltd and Mainlegion Ltd. and thus there was no BPR for the settlement’s shareholdings.


  • Property letting businesses should not assume they will be entitled to BPR unless exceptional additional services are provided
  • It is not the quantity so much, although this is clearly highly relevant, as the quality of those services which matters
  • Landlords do take risks but not in the way that trading businesses do so perhaps the moral of the story is to encourage the kind of varied and extensive additional services offered in this case but to do so through directly owned trading activities or joint ventures or partnerships with the trading entities which provide them
  • The different elements identified in Farmer are still relevant and it would seem that evidence of the activities undertaken by staff should be tangible and detailed if it is to support your client’s case
  • The approach to what is a trading ‘business’ for BPR under IHT is now somewhat different to the concept of what is a business for capital gains tax (CGT) roll over relief given the Upper Tribunal in  Elisabeth Moyne Ramsay v HMRC [2013] UT 226 decided that the landlord carried on a business for CGT when she carried on significantly less activities than the trustees in this case in relation to one let property divided into flats – it is possible that HMRC may appeal the Ramsay case

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