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An IHT win for Livery Business - what does this means for other property based businesses?


Posted on 22 August 2017

A recent Tribunal win for a livery business has wider implications, says Catherine Desmond, Partner at Smith Cooper Accountants.

In Personal Representatives of Vigne v HMRC (2017 UKFTT 632 TC) a livery stable business run by the late Maureen Vigne was held to have qualified for inheritance tax business property relief.

HM Revenue & Customs had tried to disallow the executor's claim for BPR on the grounds that the business consisted mainly of holding investments (property). However the Tribunal decided that any objective observer who visited the site during the operation of the livery would have concluded that a business was being run from and on the land.  The business did provide services to those who kept their horses on the land and that no properly informed observer would have said that the deceased was in the business of “holding investments”.

Important facts and comments from the decision:

1)      This was more than a basic DIY livery the package offered included:

a.       Provision of worming products, including administering them

b.      Providing horses with hay feed in winter (the hay was grown on adjacent land)

c.       Removing horse manure from the fields

d.      Undertaking a daily general health check of each horse

2)     The business plans showed an intention to expand.

3)     The business required additional labour.

4)     The fact that the fees charged were not significantly different to a DIY livery was not considered to be materially relevant, the additional services gave the business a competitive advantage.

5)      The fact that the business only produced a modest profit was not relevant when looking at whether the accounts bear the hallmark of a purely investment business. 

6)     The Tribunal moved away from the Pawson case (a furnished holiday let case) when looking at the level of services provided.  In Pawson the initial assumption was that it was a business of holding investments and the services were looked at in order to determine whether they were of an extent that prevented the assumption.  In Vigne the Tribunal stated that the proper starting point is to make no assumptions one way or another, but on the facts available, determine whether the business is wholly or mainly one of holding investments.

7)      The word “mainly” in the legislation does not require a consideration of whether any identified services or business activity contribute more to the income generated or profitability than the ability of a third party to occupy part of the land.  In this case the level of services provided to horse owners prevented the assertion that the business was mainly one of holding investments.

Catherine commented that “the Tribunal appear to have moved away from the recent trend towards an assumption of an investment business for certain property based activities (such as holiday lets and liveries) and have used a far more rounded approach starting with looking at the activities as a whole to determine whether a business is being carried on.

HMRC have used the earlier cases to make it difficult to assert that a business run from a property is not one of mainly holding investments and this has caused considerable concern for those who genuinely do more than merely letting others occupy their land or property.

It will still be important that these businesses do provide services along with the property to their customers and that those services are a key reason why the business is chosen over competitors that do not offer any services. 

Although this is only a first tier tribunal decision, it does give some very useful guidance and clear thinking on an area that has been “muddy” for some time now.”

For more information and assistance with inheritance tax planning for land based businesses contact Catherine on 01335 343141.

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