Two recent First Tier Tax Tribunal decisions, with slightly contradictory outcomes, have addressed the thorny issue of whether a business is classified as merely an investment business (which doesn't qualify for 100% relief from inheritance tax) as opposed to a trading business which does attract relief.

The first decision (Ross v HMRC) concerns a furnished holiday let business. A number of holiday cottages located in a picturesque setting in Cornwall were let as self-catering units. They were adjacent to a hotel which the deceased had previously owned and guests were allowed to take advantage of some of the hotel's amenities, for instance they could order bar snacks and take breakfast there. Various other additional services were also offered such as a mid-week clean and change of bed linen. It was argued that the provision of all these extras changed the character of the business from being one which was mainly an investment in land to one of providing a holiday experience and that the investment in land was a subordinate part and therefore the business qualified for BPR.

The Tribunal did not however agree. Whilst, they conceded that the level of services was more extensive than those provided in other FHL businesses where BPR was denied (and provided something which was closer to a hotel or serviced apartment type of experience for their guests), they ultimately concluded that the essence of the activity remained the exploitation of land in return for rent.

The second decision (Vigne v HMRC) concerned a livery stable business. The taxpayer argued that the business was significantly more than merely letting or licensing their land for use by the horse owners as they also provided valuable additional services, such as health checks of the horses, providing them with hay, providing worming product and removing manure from the fields. In this instance the tribunal accepted the argument and concluded that no properly informed observer could have said that the deceased was in the business of just "holding investments".

As always, this case was decided on its particular facts, although an interesting point of more general application is that the tribunal appeared critical of the approach taken in the FHL case of Pawson, which seems to have been followed in Ross (above). It concluded that rather than starting with the idea that a business based on a holding of property is one of making or holding investments and working out whether any factors have changed that view, the correct approach is to make no assumption but establish the facts and then determine whether they indicate that the business is wholly or mainly one of holding investments. It will be interesting to see which approach is followed in subsequent cases.