Finally some good news for those diversifying on the farm and a decision which goes in favour of horses!
As many will know, keeping horses has often been a problem when claiming Inheritance Tax (‘IHT’) relief on death. This is because HMRC does not regard horses as an agricultural purpose (except in very limited circumstances) and until a recent case, would also not regard a livery as being a business purpose for IHT relief.
By way of recap, assets used for business purposes can be exempt from IHT due to the availability of Business Property Relief (‘BPR’). However, this is only available for a trading business, and not those where the use of the asset is for wholly or mainly investment purposes.
This distinction can be seen when farmers diversify and provide other services, such as holiday lets and liveries. The level of service provided beyond allowing someone to use the land is often the distinguishing feature in successful claims for BPR. As far as HMRC are concerned, a livery is an investment and not a trade!
However, the recent case of The Personal Representatives of Maureen W Vigne Deceased v HMRC has changed the landscape.
Mrs Vigne inherited 30 acres of land which were used as a livery, and her business model moved away from a traditional grass/DIY livery to provide additional services, such as sourcing and providing worming products (and administering them, if required), providing hay in the winter, removing manure, checking the horses on a daily basis and arranging for the attendance of a vet, if necessary. The business had a Yard Manager and had tried to obtain planning permission to provide them with residential accommodation on site.
On Mrs Vigne’s death, her estate claimed BPR on the value of the business including the entire value of the land. HMRC took the view that Mrs Vigne merely let/licenced the land and as such operated an investment business, not a trade meaning BPR was not available.
An appeal was made by the estate to the First Tier Tribunal who confirmed that, although the business was not a partial or full Livery, the services provided as part of the business meant it was not merely a business wholly or mainly for holding investments.
The First Tier Tribunal looked closely at:
Had BPR not been available, the estate would have been liable to IHT on the value of the land, which at the date of Mrs Vigne’s death was in the region of £308,000.
The case is an important reminder that, in times where more and more farmers are diversifying the use of their land to remain profitable, it is vital to ensure that where possible, the diversification is done so as to retain the IHT exemptions and reliefs available on death.
At Hay & Kilner, our multi-disciplinary Rural Team advise on all legal issues for farmers, rural businesses and land owners, from succession and IHT planning to development opportunities, employment, and business law issues.
For further information, please contact Alison Hall, Partner & Head of The Rural Team at Hay & Kilner
Call: 0191 232 8345