Posted on Tuesday, December 5, 2017 by Sarah Wild
A recent case lost by HMRC over business property relief on a horse owner’s DIY livery business is good news for livery enterprises and owners, according to head of the Equine Team at law firm Lodders, Natalie Smith.
In the case, representatives of the estate of the late Maureen Vigne appealed against HMRC’s refusal of inheritance tax (IHT)business property relief (BPR) on the 30-acre Buckinghamshire based livery business she ran before she died.
The livery provided pasture for horses to graze, but also provided stables, the provision and administration of worming products and hay, and daily checks on the health of horses.
BPR provides relief from inheritance tax on the transfer of business assets at a rate of 50 percent or 100 percent*. For BPR to be available, the individual must hold what is deemed a ‘relevant business property’, defined as ‘property consisting of a business or interest in a business’ and not simply assets.
The appeal was heard by the Tax Tribunal, and was based on whether the business was one of wholly or mainly simply renting land, or not.
The Judge stated the case could not be determined on the value of the occupation of the land alongside the services and that the intentions of the landowner should be taken into account. He also said that as Mrs Vigne had planning permission for further stables and had previously applied for planning permission for onsite accommodation for the yard manager, combined with the services provided, demonstrated a non-investment business that was more than simply letting land.
In turn, he disagreed with HMRC’s original decision to deny BPR saying that the provision of livery and associated services did make it a bona fide recognisable business.
“In fact, the Judge stated that whilst the business was a DIY livery operation, it was a genuine livery business because it offered horse owners using the location more than a simple right to occupy a piece of land,” explains Natalie Smith, an Associate at Lodders, and a private client and equine law specialist.
She believes the decision has the potential to change the legal landscape on BPR and IHT for many livery businesses:
“In the past, solicitors have generally advised landowning clients, offering DIY livery, that BPR would not apply as the simple renting out of the land and stables was generally classified as an investment asset rather than it being utilised as a key asset in a business. For example in a full livery yard the owner is providing a wide range of services which involve much more than just the letting of the land to the horse owner and so the land is classed as being utilised as an asset of the business and the relief is usually likely to apply,” she explains.
“However, the case of Maureen Vigne now puts a different and very positive spin on the matter of BPR when it comes to IHT, as the judge ruled that hers was a livery business despite only offering a DIY livery package based on the additional services which were included.”
The change carries significant savings on IHT, as Natalie explains: “For example, if an inheritance tax paying client also owned a yard with land and facilities valued at say £300,000 which was simply let out this would be considered to be an investment asset and the IHT payable on death would be £120,000. If however that client ran the yard as a qualifying business, by offering additional services as set out in this case, then the full £300,000 could achieve 100% relief from IHT.
She adds: “With a potential 100% relief on Inheritance Tax, it should be something that equine land owners review with their solicitor to make sure they are running their livery yards in a manner which would, achieve BPR for IHT purposes when the owner dies which may be as simple as adding in some additional services as has been upheld in this case.”
Natalie believes that the ruling could have wider implications for other agricultural or land-based activities and enterprises:
“BPR may now be available to a range of land-based activities that were previously not considered to be eligible, so long as they are carrying on sufficient additional services, as in the case of Mrs Vigne. It could be very good news for country and landed estates operating pheasant or grouse shoot businesses for example, as they may now be able to argue a claim for BPR and in turn make significant savings when it comes to IHT.
“For these types of enterprises, the important point to rememberis that valuable services from the land are clearly provided and should be demonstrated,” she says. “Echoing the details of the decision in the Vigne case, what is key is that the land owner can demonstrate this important point which in turn will enable them to claim and qualify for BPR.”
For more information about Lodders: www.lodders.co.uk
Lodders’ team of equine specialists draws on the firm’s renowned and industry-leading strengths in agricultural law, private client matters, dispute resolution and planning. It includes specialistsin estate and tax planning, trusts and wills for farmers, owners and trustees of landed estates, corporate and commercial lawyers, and environmental specialists.
Lodders is a premier law firm in Warwickshire, Cheltenham, the North Cotswolds, Gloucestershire, and the West Midlands. The firm has 25 partners and over 130 fee earners and support staff across its office network. With its portfolio of sector and market specific legal teams, the firm has recorded year-on-year growth in recent years.