Andy Keates takes a canter through the IHT business relief conditions and cheers the taxpayer who romped home against a determined HMRC challenge.
The executors of Mrs Maureen Vigne appealed to the first tier tribunal (FTT) against HMRC’s decision to deny business property relief (BPR) on 30 acres of land she owned and used in a business (TC06068).
There is a long tradition of BPR being denied to businesses based on exploiting the ownership of land. Typically, HMRC challenges cases involving furnished holiday lets, caravan parks and similar enterprises. Whether or not the taxpayer wins tends to hinge on whether the business owners do more than merely charge a rent or license to occupy the land: the more additional services provided to guests, the greater the chance of qualifying for BPR.
The bar is set quite high, as I explained when looking at the case of Marjorie Ross where an extensive list of additional facilities was offered but BPR was not granted.
Which makes the Vigne case quite surprising, as the FTT decided that the land in her estate, worth just under £309,000, did qualify for BPR!
HMRC agreed with the executors that there was a business and that the 30 acres of land were assets used in that business.
However, in HMRC’s opinion, the business was essentially one of holding investments. A key condition for BPR is that the business is not “wholly or mainly of… making or holding investments.” The executors argued that the business was a genuine livery business and the land was not an investment.
Types of livery
I now know more than I wanted to about the four different types of livery. These differ according to how much of the horse’s care is carried out by the business and how much by the horse’s owner.
At one end of the spectrum there are “grass livery” (the right to graze a field, with no stabling provided) and “DIY livery” (grazing and stabling but no additional services). It is clear that these basic categories of livery would not be enough to gain BPR: they amount to nothing more than charging a rent or license to occupy land.
At the high end the business may provide: “part livery” and “full livery”, where some or all of the daily care of the horse is provided in addition to grazing and stabling.
In Vigne’s case, the business offered more than DIY livery. Four specific services were discussed:
1. providing worming products once a quarter, and administering them if requested;
2. growing hay to provide winter fodder for the horses;
3. removing manure from the fields in which the horses grazed;
4. making a daily check of the general health of each horse.
Each of these services was shown to have benefits both to the individual well-being of the horses and to the goodwill of the business. For example, while leaving the manure to fertilise the fields would arguably have improved the land as an investment, it was taken away to reduce risks to the horses’ health.
This work was undertaken by a series of yard managers who worked about 20 hours a week. The FTT judge was impressed by the fact that the yard managers were required to hold “a BHS stage 4 (or similar) qualification in equine management”.
HMRC pointed to the fees charged by Vigne, which were broadly in line with those charged by locally competing businesses for mere DIY livery. HMRC suggested this showed that the additional services must be of little significance, particularly since 20 hours a week amounts to only around 10 minutes per horse per day.
The FTT disagreed: by offering more services while charging the same, Vigne’s business was simply “placing itself at a competitive advantage”.
Additionally, the business incurred costs such as water, electricity and business rates, which clearly have no relevance to investment activity. Work such as clearing the manure or distributing hay would be carried out on a collective basis, so dividing the yard manager’s time between the horses is artificial and unhelpful.
HMRC had argued that the question (as set out in Pawson  UKUT 050) was: “whether the services were of such a nature and extent that they prevented the business from being mainly one of holding the land as an investment”.
The FTT took the somewhat radical step of looking directly to the statute and suggesting that the Upper Tribunal in Pawson had it all back-to-front: “it is not correct to start with the preconceived idea that... the business is... one of holding investments and then to ask whether there are factors that result in that preliminary view being altered. The proper starting point is to make no assumption one way or the other, but to establish the facts and then to determine whether, taken together, they indicate that the business is wholly or mainly one of holding investments”.
By applying this refreshing mode of thought, the FTT found that Vigne’s business was clearly that of offering enhanced livery. No objective observer would have seen it as the business of holding investments - “that, in our judgement, would have been a wholly artificial analysis”.
A rare victory for the taxpayers given by a rather sympathetic tribunal.
However, even if HMRC don’t appeal you should not expect this win for the taxpayer to be repeated in other cases. Given that the FTT don’t set precedent, this decision is likely to remain an isolated incident.