Another interesting case from the First Tier Tax Tribunal was Fourth Earl of Balfour TC69, which concerned entitlement to business property relief for inheritance tax. This was a Scottish case involving Scots law, and it is rather hard to follow, but there are some features that would appear to be extremely helpful. As far as I can make out, Lord Balfour had an interest in a farming partnership and was the proprietor of a landed estate comprising approximately 2,000 acres that consisted of two in-hand farms, three let farms, 26 let houses and two sets of business premises. There were also some parks, which were let on a seasonal basis.

Lord Balfour made no distinction between the partnership and the estate. His own view seemed to be that everything was run as a single business. The total trading turnover regularly exceeded the letting income for the years under review, but not always by very much.

The tribunal concluded that the whole of the activities represented a single business. That is interesting, because one might have thought that a farming partnership could easily be regarded as a separate activity from the letting of residential and commercial premises.

The next question to consider is whether the business carried on by Lord Balfour consisted wholly or mainly of making or holding investments. That would disqualify it from business property relief by reason of Section 105(3) IHTA 1984. Certainly not, said the tribunal. To suggest that the activities carried on by Lord Balfour consisted wholly or mainly of the making or holding of investments would be to belittle the efforts made by Lord Balfour properly and profitably to manage the various components of such an estate. Even the residential letting aspects required Lord Balfour’s experienced business acumen and careful planning. They were an important component in the overall business; the cottages were historically part of the overall farming enterprise or housed full-time estate workers. The tribunal said they had no difficulty in concluding that the business was not wholly or mainly making or holding investments, and it was unnecessary to make any quantitative analysis of the various activities.  

The tribunal went on to say that even if they assumed that the letting of the 26 houses and cottages constituted the making or holding of investments, they were not satisfied that the estate management and farming activities represented a business that consisted wholly or mainly of making or holding investments. On this basis, business property relief was available in full.

The key finding here is that the letting of the properties was considered part of the farming business. It might be thought equally reasonable to segregate these activities and to conclude that the separate letting business did consist wholly or mainly of making or holding investments and did not qualify for the relief. Alternatively, in this unincorporated business it would be quite possible to suggest that Section 112 IHTA 1984 applied (excepted assets) because it might be difficult to say that the let properties (other than those let to the farm workers, of course) were used wholly or mainly for the purposes of the farm business. However, Section 112 seems not to have been considered at all.