Written and recorded by John Thurston
welcome to this webinar, which is about business property relief. My name is John. First of appetite. Interesting ones. Wherever. Taxation, on everything to do with that, there's always what I'm presenting this webinar. Now this is probably very, very valuable relief, because if it applies, it can reduce about it. The process. It's business assets by 100% which means that will be free of inheritance tax. Sometimes it's any 50% but again, 50% reduction about the assets. So is getting pretty valuable would leave, actually, and quite a lot of problems with business property relief. I think it is fair to say that the reckoning are being bought. Press about claims to business property relief that perhaps say there were a few years ago sleep now in this room alive. Haven't got time to explore every absolutely every issue to to business property relief. But I did want to talk about primarily about what is exploded, because this is section 105 subsection three, the Inheritance Tax Act at 1984 and that, says a business party, it does not apply that the business business consists. Hold your mainly dealing in securities stocks or shares, land or buildings or making or holding investments. So in effect, you gotta have a trading business before you can catch business property relief, then because it can be something quite. Do you want to know whether someone's locked is business, maybe trading business or whether it's just their hobby or something like that, actually, but this issue has arisen in recent years in connection with furnished holiday lets. I don't think there's any doubt that a small bed breakfast establishment, a small guesthouse in a small hotel are trading businesses. Onda more qualified for 100% business property relief. There was a time when you're reclined, you just got one furnished on it let you restore charts so that qualify for business property relief when they died because, remember, you took the view. Perhaps it is the difference between having one furnished holiday let on a small, better breakfast establishments full guesthouse that they were all trading businesses in effect. But a few years ago, the refuse suddenly produced a statement saying they taken the advice in the legal department. There's drill that previous you about furnished holiday lets was correct, but many of the apartment of replies that it probably was incorrect in a vet. Basically, what they were saying is that we will not give you business popularly, on just one furnished holiday. Let it years to come. Which is why I was very pleased when I first came across these ports in case in 2012. This is Lady owned a bungalow over in Suffolk. Family members spent holidays there, but she was your monitors. A furnished holiday, let didn't have any agents or anything like that. So she organized the advertising, the bookings, making sure that place was cleaned between the bookings, making sure that the guard to kept the garden in good order. This bungalow was actually on a beach near orbit and suffering that actually which has switched some of you may know. But when she went and died exactly this claim, this was a trading business at the tribunal. Judge, at first instance said that his mind that invest what land Tory business was one where you were just sitting back collecting. Check the profits periodically, and so this is very different. This lady's actually running this furnished holiday, let herself and help that it waas a trading business Well, I see. Predictably, I suppose the main you appealed to a high court judge over this decision. Then on, uh, the main argue directly deployed before the high Court judge was to say that if you have a pretty one of the instance of owning that property is to find tenants occupy sort that is not evidence of trading on a high court judge. Mr. Justice Henderson accepted the hardiment of the revenue on Held that this did not qualify for business property relief. Now I don't set. There is force in the revenues argument. If you buy a large house that you subdivide into lots of fact, shall we say, Do you have a supposed to year the three yearly? That's for five years. He turned over tenants. I think I would accept what at the instance of owning that property is to fight till it's occupies Hauritz every so often that it's not evidence of trading actually, but it seems to me finish solidly. Let is very different, actually where in the holiday season you would have well weekly fortnightly turnover holidaymakers on if you're running it yourself on seven March employing agency radio, the advertising, the bookings, making sure the place is kept in good order and things like that that just seem to be sort of a religion proposition from this march house that to you subdivided into lots of flats, actually, from the same Mr Justice centers in the high court. Judge accepted this argument of revenue and held that it did not qualify for business property relief. And I think the taxpayers together a fighting fund on sort leave from the Court of Appeal. Mr. Justice, Innocent to appeal to the court of appeal. But that was refused by both. Thought them in effect. So very with duck with this case. But it was a race issue that if you've got more than one furnished holiday, let is That's a trading business. And this is propped up in two cases, one of very recent case. But the first case in 2015 was a case called Green. This is a property that was divided into funny units, each of which was available for always letting ourselves cape drink basis. That actually on uh, the owner Well, the guests would be given a welcome pack, but there was also a caretaker ineffectual car after the properties. In effect, actually, Onda, it was held that this was a monster trading business. I did not qualify for business property relief. And again, this issues crop time. They recently in the monetary Ross case this year, and this is where this lady died, including 2/3 sharing a partnership. The Green Door Colleges Partnership This old eight holiday cottages and stew to star flats do is green door colleges on a property in Weymouth Naylor's upside down house. Then, during the relevant period, well, the eight Cottagers were ended out holiday cottages. The two flats one was on a long lease on that hotel across the road that used occupation by the hotel staff. No, was read it out to the handyman. It was employed full time by this partnership. In effect. Actually, Onda upside down house was also rented out this holiday accommodation than in effect. And of course, when this lady were denied, it was argued that this partnership was carrying on trading business in effect. But again, I'm afraid this was protected by the judge of first instance. It was held that it was an investment landholding business, I think partly because the profit from these cottages wasn't that great, but opposed. There had been considerable capital appreciation. So I think the judge felt that these properties were being held on to pretty for the capital appreciation rather than trading business in effect, actually, so you don't see him that apply. Trying to get business property relief for Sandy Just one for the time they let is a non starter. It doesn't seem that even if you got a client, you got several furnished holiday lets is running themselves, then that, well, again, it seems to be a nonstarter. I think I should say there what was taken the view that if you were employing and managing agent to the car after one finished all its electoral several, I think I would possibly. Except that's not a trading business we could have set since me are just sort of sitting back and collecting a check for the profits periodically, whatever that might be, actually, because I think there is another problem with these furnished holiday cottage furnished holiday properties, in effect that Eunice that make more than so they can spend the road for days in some nice parts of the countryside, then the thing. Which landscape and of course said it has become an issue then as to whether you really got a business, because to get business property relief, you actually have to have a business. But if the prime motive is somewhere where you somewhere pleasant in this country where you're going to spend your holidays, that sort of incidentally, it's rented out to cover some of the costs of running the property? I think that it's arguable that that's that's not a trading business. In effect is not a business in if it right well. This is questioning whether it's a trading or restaurant or landholding. Businesses arisen in other cases as well. So we took a look at some of these other cases cropped up a swell, actually, I suspect. So you may act for owners of Caravan sites. Actually, Now I think there's no doubt that it's almost got a caravan site and they're just collecting the rents of the tenants of the pictures. I think call them. That's the investment landholding business that he's not gonna qualify for business property relief, but in the riding very services to the tenants, it's a residential site well collecting Commission on State of Caravans dealing in the caravans, setting the owners of the caravans insurance. It's a politics idol, big enough residential side shops selling groceries and things Kabul club movements, particularly if it's a holiday area. You can cross the line and become a trading business on the revenue this again, he said. It's quite a few cases over the years as to whether a caravan site to Mr Trading business or was just investment there told business the first case that, like just to mention and you can find all these case in the notes accompanying this webinar is the case of whole. This is where the taxpayers calculated that the trading income so the rental income was about 65% of the total income, but revenue did not accept that figure. The READY said. It's about 84% now. The special commissioner accepted the readiness trigger of 84% of the income being attributable to write. I think you've got a very high percentage of the income attributable to rent that's gave me an investment landholding business, but that was a decision. I think I think I would agree with that if you really, What's taking for so to the income was a report to the rent. If the special commission would accept the taxpayers figure already 65% of the income being attributed to rent it comes. It doesn't become a bit more difficult. I think possibly the decision would still be in the same. That it was an investment, that talking business and on the power case well, the whole of the income for the Caravan Park consider rents paid by long term residence or short term residents. Well, I really have no doubt that investment landholding business that that was a decision then, actually, so just stay a bit dodgy, claiming business property relief in respect of a care about site. But the claim did actually succeed in a case called Furnace. This is where the two seas carried on the business of running and manage Your caravan Park, in partnership with his son son, was on call 24 hours a day, seven days a week during the holiday season. He was quite often work 10 hours per day. Well, to my mind, where you got somebody's involved on a daily basis with running something that really is a trading business and then, actually, was the decision. At the end of the day, that place I'd like to look at is a case called Stigma, which changed its name is it went through the appeal process and became CR George. And this is Mr Steadman. He don't 65% of the shares and company operated residents when homes marked by just shows that attendants country club caravan storage, a warehouse and shop, both of which will let and feels that on the grating license at an insurance agency on the first instance it was held, it was a trading pissed incentive. Qualify for business property relief. But the revenue appeal to a High Court judge. You helped that it was an investment that Mrs did not qualify for business property relief the taxpayers and appealed to the Court of Appeal. The Court of Appeals said. It's a question of fact is whether it's an investment land, tortilla business or trading business on was prepared to hold that it was a trading business did qualify for business property relief. So I give any of you act for a za care about science will. The message is quite clear se ultraviolet is much service to the tenants as they possibly can. I always felt the weakness in this Stedman occasional CR George, it became was the warehouse and shop, both of which were let because once you let something, it is, of course, that tenants were carrying on the business. So I think if I be a device in this company and perhaps said, well, rather warehouse and shop yourself because that is evidence of Trading Street. Now accept something. You may not act for him. It's a caravan sites, but I think you're gonna have fact phone is a commercial and also defect. People who may have commercial properties or may have not served bita let properties in effect. Actually, can you get business property relief? It's been tried in quite a few cases. First, guys want to look at a case called Martin. This is where this lady and her husband let industrial units on three year fixed. Let's on. Duh. When a unit became vacant, they were to re decorate it. Then the question. What as well did those let's qualify for business property relief? I think her husband's when he was around, he would be at the site at three AM and if we three at 7 a.m. every morning to make sure everything was all right, not chase that they really, really need her to be at the site of 7 a.m. every morning. Well, I have no doubt that was an investment and told the business. And that was a decision that he did not qualify for business property relief, the working young case again, I would have had no doubt about this. But this is a lady who owned a house subdivided into four flats. But that's on a show of short or tendencies, and she employed a managing agent. I'd have had, no doubt that was an investment lavatory business. That was decision that it Woz and did not qualify for business property relief. So it doesn't get a waste of time claiming business profitably for commercial land boats. But it actually see in this former case in this case has been anonymous ized this a man wasp, a farmer. There's no question he was running a trading business as a father, but also quite often happens with farms, old bonds that longer suitable for modern agricultural practices that get turned into offers. Units, industrial units, holiday cottages in the holiday area, farm cottages, houses no longer occupied by farm workers but, yes, cholera rental properties as well. And there was evidence that some years his income from the training activities of a farmer exceeded the rental income. But other years that rental income was greater in effect, actually, but, um, there's no way around it. Waas When when he went and died, then they claimed that it was a trading business overqualified for business, property relief, refuge or seek challenged. That claim in respect to these properties are rented out. But the tribunal, if essence and started doing that, the whole lot was one trading business. There's no question this man was running a trading businesses. A farmer. They took the view that these properties renting out it was already or part of the same training business and help they all qualify for business property relief financially. Let's face it, just like to mention his case called Clark. And this is where the deceased own shares in T. Clark and Son LTD. This is a company bill, residential commercial properties and 100 residential properties maintain with its own workforce but also managed to maintain about 100 41 other dwellings owned by the Clark family that was paid but a management fee. The question was, Was this an investment advisory business? But Wasit, a trading business? It was held that looking at the matter in the round it wasan investment Natalie business, so the shares did not qualify for business property relief. The next great allies have look at is the McCool case. This is a lady who inherits grazing land from a husband. This land is in Northern Ireland now. She gradually loses mental capacity. But a son in law runs this raising that on her behalf. And when she dies, there's no question qualify for agricultural property relief is agricultural land. It's worth about 165,000 but it has been so to suitable for residential development by the local authority, with the result that its value shoots up to £5.8 million then, so you only get your agricultural project on the agricultural value 165,000. But if you got a trading business before 5.8 million will be free of inheritance tax, so they liken bore. So that was a trading business here. Well, the Special commission said, Well, 1st 3 strikers decide. Is there a business here? No doubt that was a business, said there, actually, on the second question was, Whose business was it? Was it something more who run this raising land on behalf of Mother Law, gradually lost mental capacity. Especial Commission wants prepared to hold that it was. Mother knows business. I think I'd agree with that because, in effect, the son in law was a manager on behalf of Mother Indoor. Actually, So yes, I think it could still be this lady's business, but I'm afraid it was held that it really was an investment man. Tory business did not qualify for business. Property relief on the tax may sold need to appeal, but that was refused The Philips case. This is where the deceased own shares a country which had been involved in investment business but then change the nature what it did. Instead of being involved directly in investment business. It's a starter making loans to other companies involved in the investment business. The question was, was making loans and other companies involved in investment business a trading business or investment Heartland told me business was actually helped to be trading business. Now the DW Percy case. This is where the deceased own shares in a company called Temple Relaunch Limited. No question this company owned Bear his sights on the face or is it was the landlord in company. So the deceased was involved in his company that he can have evidence that it was in effect in the trade of property development. In effect, my Biocyte had gone to a few years for he get planning, consent or about it, try to buy other sites that around. It may be that he managed to convince See, especially Mr that it was sort of buying and selling sites. But it was held to be a trading business, and actually the next cases the bowel. Four cases, quite a well known run. This sort of with the spot is known to the states on. This is very typical of lots of landed estates in Scotland, where they have food crops. A few animals, maybe, but also a former street, made some money out of hunting, shooting and fishing as well. There is one of these fate toppy. Fairly typical. Scott expanded the stakes, and all these various activities go on. In effect, He was owned by Lord, our farm. It was a sort of Arthur Bell, for it was the grandson of this country in the last century. The others were all said he was involved on a daily basis with running this this Scottish land of the state restaurant wars. Well, was it a trading investment? Told business on both investments Home appeal. It was sold that it was a trading business and quality wife business, property relief. And I think rightly so. I think where you got somebody's involved on a daily basis running something that really is a trading business. But I'm afraid the radio would not necessarily agree with me on that. The last case you just want to look at is the best case. And this is where this man was involved with running this in Industrial Park. In effect, actually, when he was that I would be at the site every day. There's about 400 people on the site, but he would be there for a day just to make sure everything was all right. Actually on, uh there was a service charge. There was various industrial units, warehouse an office, units as well, and the service riding through the vision of four left truck boardroom. Higher Secretary was service station vision, car parking and a receptionist. And when he went to died, it was necessary to employ a full time administrator. But again, I'm afraid it was held that it wasn't investment, Anatoly. Business, not a trading business. I did not qualify for business property. Really? Actually. So I think you're gonna get a challenge, your plane to business property relief. It may well be on the grounds that it's not a tricky business, but really an investment or learn told businesses. But just a quick word about the other conditions. They've got to be satisfied. Teoh, get business property relief. Normally, you must have had the business or two years. Although there are some exceptions to that corporation's business, a sole trader incorporates the business. They can have the period of ownership, but the business of sole trader for the period of ownership of their shares in the company, in order to say that to your requirement is satisfied and usually if months miles still partner dies doing as its qualifying for business property relief for a surviving spouse. Also a partner. That smarmy spouse or partner can have the period of ownership there to see spells or sort partner to their prayers of ownership in order to see if the two year requirement is satisfied. Another issue that you may encounter with the revenue There's a written. You look very clear, great, carefully, but how much cash trading business has in the bank? But if the revenue take the view that they do need all that cash, you don't get to business partner. Leave on what the revenue think is needed to actually run the business. Well, I hope this webinar business probably for a bit of interest to you, particulars you who may have a personal interest to mayor unfurnished holiday extra sales as well as to where they get to qualify for business property relief. But the answer seems to be very clearly no. Right. Well, thank you very much.
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