Under section 105(3) of the Inheritance Tax Act 1984 (IHTA) business property relief (BPR) is denied to businesses whose business consists wholly or mainly of holding investments.
A recent case before the Special Commissioners highlights the need to look carefully at the operation of what appears to be a property holding business before dismissing the possibility of BPR.
In the case of Furness v IRC a partnership, two-thirds belonging to the father (now deceased) and one-third to the son, owned a caravan site. There were visiting touring caravans and static caravans. The partnership did not own any of the caravans, but the static caravan owners were obliged to either sell to or buy from the partnership. There were entertainment facilities, shop and clubhouse with a bar, operated by the son's employees. It appears that during the holiday season the son would work up to ten hours a day, seven days a week running the business.
The Inland Revenue argued that the partnership was denied relief by s105(3) IHTA 1984. However, the Special Commissioners accepted the taxpayer's claim to BPR for two reasons
1. The amount of work put in by the son and his full-time employees went beyond what would be expected in a business that consisted of holding investments.
2. The fact that the income received from trading in caravans exceeded the rental income received from letting caravan pitches.
It is curious that it was the son who did the work but the father's estate that was claiming BPR. However, since the business in its entirety was deemed not to be an investment holding business all partners benefited.