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  • Katherine Bullock

No "clear bright line" for Business Property Relief



The Upper Tax Tribunal has heard the appeal brought by HM Revenue & Customs against the First Tier Tribunal (FTT) decision in the Vigne case and found in favour of the taxpayer. Whilst this must offer some significant hope that the tide of HMRC's success in Business Property Relief (BPR) cases involving land-based businesses might be turning, it is probably premature to suggest that this guarantees success for those seeking the relief in respect of holiday letting businesses.


In particular, the business in Vigne was argued to be more akin to a nursery business than a hotel or holiday letting business. HMRC had argued that horse livery was no different to holiday letting to humans. This, though, fails to recognise the essential difference between human and animal guests. Human guests are largely responsible for their own safety, care, exercise and wellbeing whereas the livery owner is taking responsibility for every aspect of the animal's wellbeing over an extended period. As one commentator has pointed out, "Most holiday lets don't inspect for worms; many nurseries do!"


"HMRC's position is that most people own holiday lets as investments in the underlying land, rather than as income-generating businesses"

Mrs Vigne was a widow, who at her death owned around 30 acres of land. On her husband's death, she took over his DIY livery business. That business ceased, and the land was let to a third party, but around 2008, the let to the third party ended and Mrs Vigne began to carry on the business herself. To make her business more competitive and distinctive, Mrs Vigne offered additional services beyond DIY livery including the provision and, if required quarterly administration, of worming tablets (which had the added advantage of making her livery a healthier environment), the provision of additional hay feeds in the winter, checking on the health of the horses daily and removal of manure from the fields. There was a detailed business plan and planning permission was sought for a dwelling for the yard manager. This was seen as important because it showed that the business was planning to expand and went beyond a DIY livery, where the yard manager would not need to live on site.


The facts of this case are of course specific, and care will therefore need to be taken when seeking to apply the decision to other fact patterns. However, the decision is helpful in that HMRC appeared to be suggesting that any business involving the exploitation of land should be assumed to be wholly or mainly an investment business unless the taxpayer can establish otherwise. The FTT decided that this was an overstatement of the position. The Upper Tax Tribunal has confirmed that the FTT applied the correct legal test and the conclusion it reached was one it was entitled to reach on the basis of the evidence before it. It is a question of the facts in each case and there is "no clear bright line" between businesses which qualify and those that do not.


BPR is a very valuable relief which can exempt 100% of a qualifying business from inheritance tax. HMRC have been very successful recently in denying BPR to furnished holiday lettings as businesses that 'consist wholly or mainly of …. making or holding investments'. HMRC's position is that most people own holiday lets as investments in the underlying land, rather than as income-generating businesses. This view was supported by the Court of Appeal in the George case in 2004, and in McCall in 2009.


The Upper Tax Tribunal followed this view in the Pawson case in 2013. Pawson was then followed by a series of defeats for taxpayers. Most recently there have been a succession of taxpayers arguing that there is a spectrum, with basic letting at one end, and hotel-keeping at the other, with varying outcomes. Whilst the recent case of Ross had suggested that a holiday-letting business was fundamentally different from a hotel irrespective of the level of services provided, the taxpayer was successful in the FTT case of Graham. Interestingly, it does not seem that the services provided in Graham differed very much from those in Ross.


Whilst the decision in Vigne is encouraging, the number of cases passing through tribunals demonstrate HMRC's willingness to force taxpayers to the stress and cost of a tribunal hearing. It is however a decision, which certainly must dent HMRC's confidence and will offer an exciting opportunity particularly for activity businesses undertaken on land estates such as grouse-shooting.

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