Business property relief (BPR) can eliminate 100% of an inheritance tax (IHT) charge on business assets. However, BPR is not available where the business consists wholly or mainly of holding investments. This is called the “investment exclusion”.
In the case of the late Helen Butler (TC08949), the business in question was a share in a limited liability partnership (LLP), and the IHT at stake was £1,671,235.
The most significant activity of Tufton Warren Farm LLP was a wedding venue business operating from a historic barn on the farm, called Clock Barn. How it was categorised would determine the nature of the whole.
HMRC took the view that the wedding venue business was mainly one of holding investments and, as a consequence, so was the entire business of the LLP. Butler’s death triggered a chargeable transfer of value, of which no part was relevant business property due to the investment exclusion, and IHT was due.
Butler’s personal representatives took the opposite view – the wedding business was not mainly an investment business, and the entire business of the LLP was relevant business property covered by 100% BPR.
Investment exclusion
Judge Nicholas Aleksander of the first tier tribunal (FTT) was faced with a great deal of case law around the investment exclusion, some of which (such as Vigne and Ross) I have previously covered on AccountingWEB. None of the case law related directly to businesses operating wedding venues, the closest parallel being holiday accommodation.
However, there are certain basic principles.
- There is no “bright line” between businesses that qualify for BPR and those that do not. There is a broad spectrum of possibilities, ranging from merely granting a tenancy to operating a hotel. Every case must be evaluated on its own merits.
- The owning and holding of land to obtain an income from it is generally an investment activity, even when “actively managed” (incidental management and maintenance work and so on).
- Additional facilities whereby the landlord might earn additional fees (such as cleaning) may stand apart from mere investment management. The test is not the degree or level of activity, or whether a separate charge is made for them, but rather the nature of the activities that are carried out.
- Where there is a composite business, it is necessary to look at it in the round and over an appropriate period. The statutory words must be applied as a whole to all the activities of the business.
Venue spectrum
The judge suggested that the spectrum for event venues might range from a village hall with a kitchen, tables, chairs and wedding and event licences (there may be a caretaker, a cleaner and an administrator who can recommend suppliers but the wedding couple would engage all the suppliers themselves) to a fully serviced conference venue, which provides a complete wedding event package.
“The issue to be resolved in this case,” said the judge, “is where on that spectrum does the LLP’s business fall – and does it consist wholly or mainly of holding investments?”
The business of weddings
In 2004, when she started the wedding business, Butler formed a relationship with Country House Wedding Venues (CHWV), which manages a directory of independent wedding venues. CHWV provided administrative and marketing services and received a commission from the caterer for each wedding they introduced to Clock Barn.
From 2009, customers were required to use a designated caterer, Perks, who used a commercial kitchen on site, but supplied its own pots, pans, crockery and glassware.
In 2013 Perks was replaced by Galloping Gourmet, a subsidiary of CHWV. The company operated from its own kitchen, which it installed in a barn leased from Butler.
Initially, the venue was used exclusively for wedding receptions, but in March 2014 Butler obtained a wedding venue licence allowing civil weddings and partnerships to be held at Clock Barn. She had held a licence for the sale of alcohol and for music and dancing since the business began.
Between 2004 and 2015 the business grew from three weddings a year to 95.
After its appointment in 2013, Galloping Gourmet took over many other functions from the wedding team at the LLP.
Although the LLP team was on site on the wedding day itself, Galloping Gourmet gradually took over event management responsibilities. Its front-of-house director was responsible for running the event, meeting the couple, the food and drink service, and much of the event management role previously fulfilled by the LLP.
Galloping Gourmet also took the lead on collecting the information about the wedding from customers, and passed through to the LLP team only the information necessary to set up Clock Barn on the day.
Order of service
Given that the appointment of Galloping Gourmet and its assumption of much of the LLP’s work amounted to “a fundamental change in the nature of the business”, the judge felt that the appropriate period to be considered was between June 2013 and May 2015. During that period the following occurred.
- The only invoices issued to customers by the LLP were for “use of Clock Barn for a wedding”. The judge found that “the fee is paid primarily for the use of Clock Barn, its garden and grounds”.
- Activities related to the operation of the wedding licence were “always undertaken by someone from the catering team, and never by a member of the LLP staff”. The “designated person” required under the licence was a Galloping Gourmet member of staff.
- Catering “is possibly the largest expense incurred in relation to a wedding”, yet customers contracted separately with the caterers and paid them separately.
- The LLP “never provided a fully working kitchen… But, critically, after Galloping Gourmet was appointed, the LLP no longer provided any kind of kitchen, as the commercial kitchen was provided by Galloping Gourmet.”
- “Before each event, the maintenance team would set up the bare tables and chairs, garden furniture, bunting and the wireless microphone. After the wedding ceremony, the team would reconfigure the furniture for the wedding breakfast and party. The team would then put the furniture away after the event… This activity is not part of a business of holding investments.”
- “While some level of supervision of a wedding event was undertaken by the LLP through the provision of venue manager, this role was undertaken by Galloping Gourmet after they were appointed as caterers.”
Not happy ever after
The judge’s overall conclusion was: “Stepping back and looking at the business as a whole, I find that the Clock Barn business has always fallen on the village or community hall side of the spectrum, and away from the fully serviced conference venue. Before the appointment of Galloping Gourmet as caterer, the level of business activities undertaken by the LLP may have been of more significance, but I find that it still fell to be treated as a business of holding investments.”
As we have seen in so many cases, BPR will only be granted when a landlord provides a significant level of service above and beyond the mere use of the property.
The LLP’s customers did receive a wide range of services, but they were not supplied by the LLP, whose business mainly related to the use of its land and buildings.
