A recent Upper Tribunal decision on IHT business property relief provides helpful insight on ‘investment businesses’.
In Vigne [2018] UKUT 357 (TCC) (reported in Tax Journal, 9 November 2018), the Upper Tribunal recently upheld the First-tier Tribunal (FTT) decision that the business in question – a livery business – was not one which consisted wholly or mainly of making or holding investments, and as such was not debarred from IHT business property relief (BPR). That is not to say that all livery businesses will qualify for BPR, for the test for BPR is a multifactorial one to be applied to the specific facts of the particular business before the tribunal. Indeed, the Upper Tribunal was not required to decide whether it would have come to the same decision as the FTT had it been approaching the question de novo: it was required only to say whether the FTT had identified the correct legal test and had applied it correctly to the facts before it (which it had). The importance of the Upper Tribunal decision, therefore, lies mainly in the explanation of the test and especially of its clarification of the judgment in Pawson [2013] UKUT 50.
In Pawson, the Upper Tribunal had held that a holiday lettings business was, on the facts, a business that consisted wholly or mainly of making or holding investments. Based on comments made in that case, which were in turn based on comments made in earlier cases, HMRC’s submission in Vigne (as paraphrased by the tribunal) was essentially that ‘any business involving exploitation of land should, as a matter of law, be assumed to be wholly or mainly a business of investment unless the taxpayer could establish otherwise.’
The tribunal thought that this ‘clearly overstates the position’: Pawson had said only that such an assumption applies to ‘the owning and holding of land in order to obtain an income from it’, which the tribunal considered ‘a much more restricted proposition’. Indeed, it pointed out that the Court of Appeal had said when refusing permission to appeal in Pawson: ‘there is no presumption that requires to be rebutted, that a business, which consists of the exploitation of land for profit, is an investment business. Of course it must be looked at in the round.’
In Vigne, the FTT’s approach was this: ‘The essential question requires us to begin by asking the simple question: was the deceased carrying on a business, wholly or mainly, of holding investments. It is not correct to start with the preconceived idea that in any given situation, the business is wholly or mainly 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.’
The Upper Tribunal could find no fault with that approach and dismissed HMRC’s appeal.
Saying that a business of ‘the owning and holding of land in order to obtain an income from it’ is likely to be an investment business might be thought to be a statement of the obvious. However, the clarification that the ‘Pawson presumption’ says no more than that is undoubtedly helpful to taxpayers seeking BPR. The question will remain, as it always has been, whether a particular business does amount, on the facts, to such a business. There is, as the Upper Tribunal observed (in what risks being a further statement of the obvious) ‘no clear bright line between businesses which qualify for [BPR] and those that do not’.
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Vigne vindicated: preconceptions prohibited
A recent Upper Tribunal decision on IHT business property relief provides helpful insight on ‘investment businesses’.
In Vigne [2018] UKUT 357 (TCC) (reported in Tax Journal, 9 November 2018), the Upper Tribunal recently upheld the First-tier Tribunal (FTT) decision that the business in question – a livery business – was not one which consisted wholly or mainly of making or holding investments, and as such was not debarred from IHT business property relief (BPR). That is not to say that all livery businesses will qualify for BPR, for the test for BPR is a multifactorial one to be applied to the specific facts of the particular business before the tribunal. Indeed, the Upper Tribunal was not required to decide whether it would have come to the same decision as the FTT had it been approaching the question de novo: it was required only to say whether the FTT had identified the correct legal test and had applied it correctly to the facts before it (which it had). The importance of the Upper Tribunal decision, therefore, lies mainly in the explanation of the test and especially of its clarification of the judgment in Pawson [2013] UKUT 50.
In Pawson, the Upper Tribunal had held that a holiday lettings business was, on the facts, a business that consisted wholly or mainly of making or holding investments. Based on comments made in that case, which were in turn based on comments made in earlier cases, HMRC’s submission in Vigne (as paraphrased by the tribunal) was essentially that ‘any business involving exploitation of land should, as a matter of law, be assumed to be wholly or mainly a business of investment unless the taxpayer could establish otherwise.’
The tribunal thought that this ‘clearly overstates the position’: Pawson had said only that such an assumption applies to ‘the owning and holding of land in order to obtain an income from it’, which the tribunal considered ‘a much more restricted proposition’. Indeed, it pointed out that the Court of Appeal had said when refusing permission to appeal in Pawson: ‘there is no presumption that requires to be rebutted, that a business, which consists of the exploitation of land for profit, is an investment business. Of course it must be looked at in the round.’
In Vigne, the FTT’s approach was this: ‘The essential question requires us to begin by asking the simple question: was the deceased carrying on a business, wholly or mainly, of holding investments. It is not correct to start with the preconceived idea that in any given situation, the business is wholly or mainly 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.’
The Upper Tribunal could find no fault with that approach and dismissed HMRC’s appeal.
Saying that a business of ‘the owning and holding of land in order to obtain an income from it’ is likely to be an investment business might be thought to be a statement of the obvious. However, the clarification that the ‘Pawson presumption’ says no more than that is undoubtedly helpful to taxpayers seeking BPR. The question will remain, as it always has been, whether a particular business does amount, on the facts, to such a business. There is, as the Upper Tribunal observed (in what risks being a further statement of the obvious) ‘no clear bright line between businesses which qualify for [BPR] and those that do not’.
