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Business Relief - Will Your Business Qualify?

on Thursday, 13 December 2018.

Business Relief (BR) previously known as Business Property Relief, has for many years been one of the most useful and versatile reliefs available to individuals who wish to reduce their inheritance tax liability, relating to lifetime gifts and on death.

BPR Benefits

The relief, which is available at either 50% or 100%, applies to 'relevant business property' that has been owned for at least two years. This includes an interest in a business, unquoted shares (including those listed on the Alternative Investment Market) and plant, machinery and buildings used in a business.

BR is of particular interest to small, often family run businesses where the owners wish to transfer their business to the next generation either during their lifetime, or following their death.

What Are The Restrictions?

There have been concerns that the government and HMRC might restrict the use of what is often seen as a very generous relief. However recent cases have shown that, in relation to one type of business at least, the courts are taking a more considered approach.

BR is excluded from applying to businesses that consist wholly or mainly in dealing in securities, stocks or shares, land or buildings or making or holding investments. As a result, businesses that involving the use of land and buildings (such as holiday lets) have long been a battleground between tax payers and HMRC. There has been a considerable number of reported cases where HMRC has challenged claims for BR where it has decided that the business in question consists wholly or mainly in the making or holding of investments.

Recent Developments 

Since the decision in Inland Revenue Commissioners v George  [2003] STC 468  the bar for business owners seeking to claim this relief where their business derives profit from the use of land has been set high. In HMRC v Pawson  [2013] STC 976 Henderson J stated that the court would take as its starting point, "the proposition that the owning and holding land in order to obtain income was generally to be characterised as an investment activity".

In recent years however there has been a perceptible, albeit slight, shift in the attitudes taken by the courts when deciding whether a claim for BR falls foul of the restriction. A number of recent decisions can be seen to show a greater willingness to take into account the full nature and extent of all the elements of a business, despite the fact the business in question generates profit from land.

The June 2018 decision Graham v HMRC [2018] TC06536 allowed a claim for BR for a holiday letting business because the court felt that the exceptional level or services provided by the owner to guests meant that the business could be distinguished from a "normal" holiday letting business to the extent that it was no longer just an investment business.

In November 2018, HMRC lost an appeal against an earlier decision that had permitted a livery business to claim BR. This case further clarified that the courts should consider the business as a whole, including all the services the business offered to horse owners. In this case (which once again turned largely on the facts) it was decided that the level of services provided to horse owners extended beyond the usual running of a livery business to such a degree that the presumption in Pawson didn’t apply. The court recognised there was no dividing line that could separate businesses that could and could not claim the relief, however the case provides further helpful guidance for those who may seek to claim the relief in the future, including those involving two legged guests.

What's Next?

Future decisions are likely to clarify further the level of services and activities that a business will need to undertake (beyond those merely connected with maintaining the land) and show how far the courts will deviate from their existing position of assuming that a business involving land would not qualify for BR unless incontrovertible evidence to the contrary was provided.

These decisions will not open the floodgates for all business involving land to claim BR and it should not be forgotten that the bar to obtain the relief for such businesses remains a high one. Any claim for BR for businesses involving in land is also likely to be scrutinised by HMRC and the prospect of a protracted court battle with HMRC is likely to put off many marginal claims.


If you think you may have assets that could benefit from BR or if you would like to discuss how you could use BR to reduce your own inheritance tax liability, please contact Edward Harper in our Private Client team on 020 7665 0835.