I must admit my surprise to find that the Revenue have lost their appeal in the case of HMRC v Nelson Dance Family Settlement [2009] EWHC 71. This really is a case of the textbooks having to be rewritten. The taxpayer had a farm and transferred some of the farmland to a trust claiming 100-percent business property relief. The land was used in the farming business, but Mr Dance did not transfer business or an interest in the business to the trustees; he transferred just the land. HMRC said that business property relief was not available – it was necessary for him to transfer a business or an interest in the business to qualify for the relief.

It seems generally to have been accepted that relief is not available on a simple transfer of an asset used in a business. Business property relief derives from Section 104(1) IHTA 1994, which says that the relief applies:  

“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 means “property consisting of a business or interest in a business”.  

It was, therefore, generally understood that unless you transfer relevant business property, you do not qualify for the relief. The land transferred by Mr Dance was not itself a business or an interest in the business; it was, therefore, not relevant business property, so HMRC said that the relief was not available.  

The Special Commissioners said that this was not the correct reasoning, and their view has been upheld by the High Court.  

We have been looking at the wrong question. The question is not whether the land itself is relevant business property, but whether the value transferred is attributable to the value of any relevant business property. The value transferred was not the value of the land but the diminution in the transferor’s estate by reason of the transfer. So, you do not look at the subject matter of the gift, but at the amount by which the transferor’s estate is diminished, and see whether that amount of value is attributable to the value of the assets used in the business. On this basis, the transfer of the land to the trust qualified for business property relief.  

(This is not an easy analysis, but you can see how the argument runs. However, I found it a bit much for His Lordship to say that the taxpayer’s argument “has the very considerable merit in a taxing statute of simplicity and certainty. [On this interpretation] citizens can know clearly when the tax may be charged and BPR is to be available and can plan their affairs accordingly”. The position is so clear that the distinguished and learned authors of the three major textbooks on the subject all got it wrong.)  

This does open up a number of significant planning opportunities, because any asset of the business can be given away with full business property relief, such as the odd farm building or various fields – and even cash. If the business has significant amounts of cash (required for a genuine business purpose and not an excepted asset) simply transferring the cash to a discretionary trust would clearly be eligible for business property relief. However, I do not think that I would rush to do so until such time as the appeal position has been clarified.