A recent matter has required us to look into the complex issue of how to treat a jointly owned houseboat for the purposes of inheritance tax. Is it classed as land or a chattel? Alternatively, is it part of the land and therefore classed as a fixture and fitting? It is an area of debate as to whether the joint ownership reduction applies but, to determine the outcome of this, we must first ascertain whether a houseboat is indeed a chattel (more commonly known as personal possessions) in the Revenue’s eyes. We will start by discussing the differentiation between a fixture and a chattel with a focus on how the law has previously treated houseboats for the purposes of this debate.
A fixture is part of the land, whereas chattels are moveable property that do not form part of the integral heritable property. The general rule is expressed in the Latin phrase ‘quicquid plantatur solo, solo credit’ which to those of us who do not speak Latin, translates to ‘whatever is attached to the soil becomes part of the soil.’
A recent court decision brought up this very issue with regard to a dispute concerning some houseboats in Bembridge Harbour in the Isle of Wight. Here, the houseboats did not float on water but instead rested on wooden platforms driven into the harbour bed. The owners of the houseboats purchased a houseboat itself and not an interest in the land. They paid a site rent for the plot. The owner argued a houseboat was a dwellinghouse, whereas the plot owner, who was seeking possession, argued that the owners occupied the plot as tenants and not as licensees. The owners argued that they were protected as assured tenants of the dwellinghouse. The court had to decide whether the houseboats were chattels and therefore removable at the end of the tenancy, or attached to the land and therefore fixtures that could not be removed at the end of the tenancy.
Central to this discussion is how to determine whether an item is a chattel or a fixture. This involves the consideration of the degree of annexation of the item to the land and the purpose of that annexation. The Court of Appeal found that, although the houseboats could be lifted off the structure by a crane (which suggests they are chattels), this could not be achieved without causing substantial damage to the houseboats, which suggests that they are a fixture.
In short, the condition of a houseboat at the time it was placed on the supporting structure was one determining factor and any later improvements made could not be taken into account. Thus, the issue of annexation depends on the position when a houseboat was first placed on the support.
The question therefore arises - so what of houseboats that float? In this case, the houseboat can be easily disconnected from the main services and removal from the moorings will not cause damage. In this instance, the argument is that the houseboat is not a fixture but a chattel. The mooring is classed as an interest in land and is subject to stamp duty land tax on the sale or assignment of the leasehold interest. The mooring can be held as tenants in common and the joint ownership reduction for the purposes of inheritance tax may apply, as explained in further detail below.
To what extent does the co-ownership of a houseboat factor into this?
A houseboat (or indeed, a static caravan) can be held like real property as joint tenants or tenants in common. As joint tenants, the survivor automatically inherits the co-owner’s share, whereas as tenants in common, each co-owner owns a specific share which passes in accordance with their will, or if there is no will, under the intestacy rules. So, to what extent can the joint ownership reduction apply in instances where a houseboat is held as joint tenants as far as inheritance tax is concerned?
In legal terms, it has been noted that a part owner of a chattel does not have the same rights as a part owner of land/property. The only legislation giving a part owner any rights is section 188(1) of The Law and Property Act 1925, which states that “where any chattels belong to persons in undivided shares, the persons interested in a moiety or upwards may apply to the Court for an Order for division of the chattels or any of them, according to a valuation or otherwise, and the Court may make such an Order and give any consequential directions as it thinks fit.” However, there is scope to argue that a discount may well apply for the purposes of inheritance tax on a case by case basis.
Firstly, one must determine whether a houseboat is indeed a chattel (applying the degree of annexation). This must be looked at in light of all the circumstances of each case. What has been suggested is that, if a houseboat is floating and only attached to the land by a mooring, the houseboat is a chattel (and if co-owned as tenants in common, a discount may apply for the purposes of inheritance tax, although this could be anything from 0% to 75%) and the mooring itself is land. Ownership of the mooring would need to be investigated in its own right. If, however, the houseboat itself is strongly annexed to the land, it may well be treated as land in the Revenue’s eyes and, therefore, should be included as land for the purposes of completing the inheritance tax account, applying the usual principles of land ownership.
In short, we would recommend that each case is carefully considered and that the Revenue is contacted for further advice when the situation is unclear. It is still very much a debatable issue and appears to be somewhat of a grey area.
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