Farm business diversification and BPR

BPR is a valuable relief, as where specific conditions are met, there can be up to 100% relief from IHT on the transfer of the business. One of the conditions is that the business must be wholly or mainly (meaning at least 50%) trading, as opposed to wholly or mainly holding investments,

There have been quite a few cases in recent years that consider this point, but these have primarily been in relation to holiday lets. The general outcome of these cases has been that the holiday lets are simply letting businesses with some incidental services that did not change the character of the business. The First-tier Tribunal (FTT)’s view has been that it will only be the exceptional letting business which falls on the non-investment side of the line. In one such case the personal care lavished upon guests distinguished it from other ‘normal’ actively managed holiday letting businesses; and it was more like a family run hotel than a second home let out in the holidays.

This is the first such case involving a wedding barn.

The executors of a deceased taxpayer claimed that her home, a farm with multiple revenue streams, qualified for BPR, which would have reduced the IHT bill by almost £1.7 million. HMRC did not agree that the business was wholly or mainly trading.

The farm included a barn used as a wedding venue. It also carried on a farming business, which it was agreed was trading, and commercial letting, which everyone agreed was investment. The decisive factor in the case was therefore whether or not the wedding business was trading.

The farm had diversified and made this its main business, selling most of the farmland. A relationship was established with a wedding venue company, which provided marketing, administration services, and introduced caterers for commission. The majority of weddings were booked after introduction of clients by this company. No services were provided by the farm at first, with clients hiring in their own suppliers, but the business gradually took more of a role in planning and helping to run the events and taking on staff.

Three years before the taxpayer’s death, the relationship with the third party caterers deteriorated, and a new firm was appointed. This new firm took over many of the functions previously performed in-house, and became the main point of contact for customers. At this time, the taxpayer had also become seriously ill and was less able to work.

To make its decision, the tribunal looked at each key element of the day to day running of the wedding business and then stepped back and looked at the business as a whole. It ultimately found that over the period it considered relevant, which was after the new caterers were appointed, this was mainly an investment business and BPR was therefore not available.

This case confirms the FTT’s view of the exceptional level of service required to tip a property letting business over the trading line. The FTT commented that a spectrum existed for event venues – ranging from the hire of a community or village hall at one end of the spectrum, to a fully serviced conference venue at the other end. In this case the business fell on the village or community hall side of the spectrum. At no point did the amenities and services provided go significantly beyond the amenities that are provided in a property held predominantly for investment purposes.

Where your business carries out a mixture of trading and investment activities, and particularly where property is involved, it is important to review the position regularly to assess the IHT exposure. We can help you with this and consider any actions you could consider taking to ensure a better IHT position. If you would like to discuss this please get in touch with your usual Evelyn Partners contact or one of the contacts listed.

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