A special commissioner decided that land owned by a deceased did not qualify for business property relief for purposes of inheritance tax since, although the deceased owned a business at the date of her death whose assets included the land, that business was one which consisted wholly or mainly of the holding of investments within IHTA 1984, s. 105(3).

Facts

Until her death in January 1999 the deceased owned about 33 acres of farmland in Ireland. She had a house adjoining the land, and one of her two daughters lived with her husband, M, next door. The deceased's other daughter lived in a different county. The deceased inherited the land from her husband on his death in 1983. She did not farm the land herself, but it was let under conacre (a concept peculiar to Ireland) agreements to local farmers whose beasts grazed the land during the months when the grass grew. Throughout that period M tended the land.

As the deceased grew older her memory and mental capacity diminished. Prior to her husband's death she had been an active decisive woman, but thereafter there was a rapid decline. In 1986 or 1987 she started living with her daughter and M for most of each day returning to her own house only for a couple of hours.

After her husband's death, the deceased used the services of local land agents to let the fields. As her mind failed M became more involved with the arrangements. In 1992 the deceased went to visit her other daughter where she remained for seven years until her death. Her mind continued to deteriorate during that time. While she was away, M continued to tend the fields and also organised their letting usually through a land agent. The rents were paid into M's bank account and were not paid out to the deceased. M and his wife continued to look after her house. The local council zoned land which included the deceased's fields for development use so that, at the time of her death, the market value of the land was £5,800,000 whereas its agricultural value was only £165,000.

The deceased's personal representatives claimed that the land was ‘relevant business property’ within IHTA 1984, s. 105. If it was, then the whole of the value of the land fell out of charge to IHT at her death; if it was not, then only the agricultural value would fall out of charge. In September 2005 the Revenue made a determination that the fields were not relevant business property. The executors appealed against that determination.

Issue

Whether the land was excluded from being relevant business property since the deceased at the date of her death owned a business in which the land was used, which consisted wholly or mainly of the making or holding of investments within IHTA 1984, s. 105(3).

Decision

The special commissioner (Charles Hellier) (dismissing the appeal) said that the activity of tending the land undertaken by M coupled with the annual letting of the land was just enough to constitute a business. On its own, the mere letting of the land for grazing each season would not constitute a business. What tipped the scales was the extra work done tending the land. M did that work. There was some activity and the work was something which ‘required attention’. The letting of the land was earnestly pursued, the work tending the land was modest but serious, the letting and the tending were pursued with some continuity, the income was not insubstantial, the letting was conducted in a regular manner although the unpaid use of M's time was something which was not a feature of an ordinary business, and the letting of land for profit was a common business (C & E Commrs v Lord Fisher (1981) 1 BVC 392 considered).

While the deceased had capacity, M acted as her agent in relation to the dealings he had concerning the land. After that agency was terminated by reason of the deceased's lack of capacity, M continued to be in a fiduciary capacity in relation to her and the land.

There was clearly a fiduciary relationship; the way in which M and his wife actually dealt with the profits from the land was irrelevant to the question of how or in what capacity they received those profits.

Accordingly, the deceased owned the business constituted by the activities of M and the letting of the land throughout the two years prior to her death.

The making of the ‘conacre’ lettings did not deprive the deceased of possession of the fields, or of her right to occupy the fields save to the extent that any element of that occupation would interfere with the grazier's right to graze his cattle or sheep.

The legal formulation of the nature of the rights granted did not affect the determination of whether or not an asset was held as an investment for purposes of IHTA 1984, s. 105(3). The test to be applied was that of an intelligent businessman, not a land lawyer. Such a person would be concerned with the use to which the asset was put and the way it was turned to account. Where some substantial use of the property was given to another for payment and that was the principal way that the property was used by the owner, that would indicate that the property was held as an investment whether the use was exclusive or otherwise. What was more relevant was the use made of the property by the owner of any rights he retained.

The more substantial that residual use and the less it related merely to granting rights over the property, the less likely that the property was an investment (George & Anor (Executors ofStedman dec'd) v IR Commrs [2004] BTC 8,003 considered).

In the present case, the business was one which consisted wholly or mainly of the making of investments. The activities of the business consisted of the making available of its major asset to other persons for payment without the separate provision of any substantial other goods or services. Such a business was clearly one which satisfied the composite phrase ‘a business which consists of the holding of investments’ without the need further to dissect that phrase. In any event, the land was used not to make (part of) a living on it, but to make (part of) a living from it, it was used as an investment. The essence of the grazing agreement was to allow the grazier to use the land for payment. That use might not have been exclusive but was sufficiently exclusive to be clear that the land was being used as an investment.

The whole or almost the whole of the business consisted in the activities of the making available of the land: the inspection and repairs to fencing, the attention to the drains, the weed control and the finding of the grazier were all ‘management’ activities directly related to letting the land being: either necessary under its terms or desirable for further lettings, and the whole of the income came from the letting. Looked at in the round there was little else than the business of holding an investment. The activities surrounding the letting (except perhaps the provision of water) were not so substantial as to constitute themselves a part of the business distinct from holding the land. The major part of what was done was letting the land and the other activities were a necessary part of that or small in comparison.

(2008) Sp C 678.

Decision released 7 April 2008.