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The Wire / June 2018 Edition /  Using Business Relief to mitigate Inheritance Tax: HMRC vs. Maureen Vigne

Using Business Relief to mitigate Inheritance Tax HMRC

Using Business Relief to mitigate Inheritance Tax: HMRC vs. Maureen Vigne

Entrepreneurs and business owners have plenty of tax to deal with; Income Tax, National Insurance, VAT, Business Rates, Corporation Tax, but what about inheritance tax? You would be right to assume that most business assets are exempt from inheritance tax (IHT), but it isn’t always straightforward.

Used effectively and in the right circumstances, Business Relief is an effective way to mitigate IHT. It isn’t always as simple however, as the estate of Maureen Vigne found out.

Business Relief (previously called Business Property Relief) is available for transferring ownership, either during lifetime or on death, of classes of business and business property held for at least two years. If an asset qualifies for relief it is known as ‘relevant business property’ and its value reduced by either 50% or 100% when calculating IHT. Classifications are:

You can get Business Relief on: Rate
A business or interest in a business 100%
Shares in an unlisted company 100%
Shares controlling more than 50% of the voting rights in a listed company 50%
Land, buildings or machinery owned by the deceased and used in a business they were a partner in or controlled 50%
Land, buildings or machinery used in the business and held in a trust that it has the right to benefit from 50%


A business’ land, depending on the nature of services provided, is where it’s classification can be debated. The legislation states “any land or building, machinery or plant which… was used wholly or mainly for the purposes of a business” is defined as relevant business property.

As expected, Business Relief is not available for all commercial ventures. Not-for-profit organisations, for example, do not qualify.  Also, “a business or interest in a business [that] consists wholly or mainly of one or more of the following… dealing in securities, stocks or shares, land or buildings or in making or holding investments.”

A definite ‘no’ would be a business only generating investment income, such as property owner led commercial or residential lettings. But when considering land, what constitutes wholly or mainly for business as opposed to holding as an investment?

Maureen Vigne her livery business

There have been court cases in the past, historically in favour of HMRC. Recently however, there was a development. In ‘The Estate of Maureen W. Vigne (deceased) v. HMRC’, HMRC challenged a claim for business relief on 30 acres of land used in a livery business.

Broadly speaking, livery is accommodation for horses. There are two extremes of livery and a bit of a grey area between them:

  • Full livery, the Claridge’s of the equine world. The yard will attend to the horses with food, bedding, exercise, hot towel massages, as well as stabling them, and;
  • A DIY or Grass livery, allowing a horse to graze in a field with no stabling. In this circumstance, the horse’s owner retains full responsibility for their welfare.

Mrs Vigne’s business charged modest grass livery rates and made a nominal profit. HMRC deemed the land an investment. However, the business required additional labour and showed intentions to expand. Critically, they also offered services beyond a grass livery:

  1. Provision of worming products and administering them
  2. Feeding the horses with hay in winter, which was grown on adjacent land
  3. Removing horse manure from the fields
  4. A daily health check of each horse

The first-tier tax tribunal decided a business was being carried out, placing considerable emphasis on the fact that Mrs Vigne was clearly doing more than letting out land held as an investment. On whether that land was being used mainly for business, the tribunal’s words are worth noting:

“The first observation is that this does not require a consideration of whether any identified services or business activity contribute more to the income generated and/or profitability than the ability of a third party to occupy any part of the land. The central issue is whether the ‘business’ is mainly one of holding investments. We do not dissent from the view that looking at the proportion of income derived from the use and occupation of land, as opposed to the provision of services, is irrelevant any more than it is irrelevant to consider the reality of what takes place on and in association with the land. In our judgement that reality is the provision of enhanced livery, albeit stopping short of part livery (as defined by Mr. Vigne), but nonetheless providing a level of valuable services to the various horse owners, which prevents it being properly asserted that the business was mainly one of holding investments.”

Fundamentally, the additional services provided by Mrs Vigne distinguished the business from its competitors and was the primary reason customers used it over non-service offering grass liveries. I.e. it is operating as a business with a USP, therefore it is a business.

Other businesses which may be debatable for qualifying for relief, depending on the nature of their services provided, include:

  • Caravan parks which include lettings and sales
  • Mixed agricultural estates with lettings
  • Some forms of property management

In either case, the decision offers new confidence to business owners, especially those that own land to operate and trade. It also serves as a useful reminder to us all that owning certain types of assets that qualify for business relief can help reduce inheritance tax liabilities.

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