Landowners throughout the country will be relieved to note the outcome of a recent tax appeal heard by the High Court. The appeal dealt with a fairly common issue, which was the Inheritance Tax (IHT) position on farm land – in this case land which had been passed into trust.
When the land was transferred, there was no associated transfer of the business or an interest in the business itself. A claim for Business Property Relief (BPR) was made, which makes such a transfer tax free for IHT purposes. The claim was rejected by HM Revenue and Customs (HMRC).
HMRC’s argument was based on the fact that the transferred land was used in the business, but was not part of it. The relevant legislation gives BPR ‘where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property’. Relevant business property is property which consists of a business or an interest in a business. According to the taxman, this meant that for BPR to apply, it is necessary to transfer a business or part thereof.
The High Court has decisively rejected HMRC’s argument. The question is not whether the land itself is business property, but whether the value transferred is attributable to business property. If the transfer from the donor’s estate results in a reduction in the value of the business property of the donor (the basis of a charge to IHT is the reduction in the value of the estate of the donor), then BPR will apply.