Nick Holmes' Blog
7 Oct 2009
Case law is often a good way of putting yourself firmly to sleep - the below outlines a slightly more positive case for those concerned that HMRC will be attacking structures that consist of investment assets - surprising result but a welcome one - enjoy....
Balfour Beat (ty)
The case of Earl of Balfour ‘v’ HMRC, heard before the First Tier Tax Tribunal, was decided in favour of the taxpayer earlier this year. The case concerned HMRC’s denial of Business Property Relief (BPR) to the late Earl Balfour’s Estate.
The Whittingehame Estate was a traditional Scottish landed estate consisting of agriculture, woodland, forestry management, sporting interests and the letting of cottages and other properties. The estate was owned by a trust in which Lord Balfour had a life interest until the Estate was transferred to him in 2002. As well as the life interest, Lord Balfour ran a farming operation through the Whittinghame Farming Company (WFC) operated as a partnership until 1999, thereafter on his own until 2002 when he entered into a further partnership with his heir. In February 2003, the Estate property was introduced to the partnership.
Lord Balfour died on 27 June 2003 and HMRC denied the claim for business property relief in respect of his interest in WFC. One of the grounds for discussion was whether the activities carried on by the estate were a single business or whether there were separate businesses principally farming and property lettings. The judge held that, on the facts, Lord Balfour had always treated the Estate as one and made no demarcation between the trust interest of WFC. There was minimum involvement from the Trustees, there was a single insurance policy covering the whole of the Estate and Lord Balfour assumed responsibility for all aspects of the Estate and used Trust assets as part of the overall business enterprise. The let properties were generally let to Estate workers at reasonable or low rents to benefit the estate as a whole so that the letting side of the business was ‘ancillary’ to the other business activities. The fact that there were separate VAT registrations, accounting and invoicing functions did not point to separate businesses and the judge concluded that the various Estate activities were ‘interlaced or dovetailed’. As a consequence the preponderance of activity was of a trading nature and therefore would qualify for full BPR.
This case follows closely on the heels of other decisions in favour of the taxpayer and whilst each case must be considered on its own merits, represents an important success on the part of the taxpayer in establishing the parameters of BPR.
