UK tribunal hearing clarifies inheritance tax rules for estates

Written by Ray Clancy

Monday, 23 August 2010 09:32

The details of a tribunal hearing on the availability of inheritance tax relief for estates will help owners to be better informed in terms of whether their own property assets are likely to benefit, it is clamed.

The UK taxman had appealed against a decision by the First Tier Tribunal to grant 100% Business Property Relief (BPR) to the executors of Lord Balfour relating to the Whittingehame Estate in East Lothian, Scotland.

But the appeal was rejected and now the details of why the decision was taken have been revealed.

‘This judgement adds clarification, which will enable estate owners to be more informed in terms of whether their own property assets are likely to benefit from this valuable relief,’ said Simon Dixon Smith, director of property consultants Savills.

The Whittingehame Estate extended to just over 1,900 acres and included a farmhouse, two in hand farms totalling 665 acres, three let farms totalling 917 acres, policy parks and woodlands of 308 acres. In addition there were 26 let houses and cottages and two business premises. The total value of the estate at the date of death in 2003 was put at £6.67million.

Lord Balfour’s executor was able to show that the trading and the investment elements of the estate were managed together with the common aim of securing the long term preservation of the property despite separate accounts being maintained.

Lord Balfour had remained in control of the day to day running of the estate until his death and had chosen tenants that could benefit the estate as a whole.

But the tax man sought to deny the claim on a number of grounds but the issue of particular general interest related to the question of whether the estate was a business that consisted wholly or mainly of making or holding investments?

The Judge determined from previous case law that the business should be looked at in the round to form a view on the relative importance to the business as a whole of the investment and non-investment activities. Importantly the Judge determined that this point should be considered over a period of time, not just as a snapshot on the date of death.

The Judge considered the tests set out in the 1999 case know as Farmer. As the estate was in Scotland the capital value and income generated from the investment activities were lower than might be expected for an estate further south. Nevertheless, the judgement confirms that it is not necessary to be able to pass all the tests set out in the Farmer case, Dixon Smith explained.

In particular it showed that maintaining separate management accounts is acceptable provided the income is applied to the benefit of the estate as a whole, that investment activities should be complementary to the trading activities as far as possible, financial performance can be considered over a period of time, technical differences in ownership structure may not be fatal to a claim, time spent by the in hand farming team should be noted and compared with time spent managing and maintaining the investment activities and capital values may not be conclusive evidence, especially where there has been a long history to the estate and its property mix.

First Tier Tribunal decisions can only be overturned on a point of law. In this case the Judge determined that the first decision was not unreasonable in the light of the evidence provided. This does not mean that another Tribunal could not have reached a different conclusion.

‘Estate owners can take some comfort from this decision but the status of their property as a whole should be kept under regular review to maximise the chances of this valuable relief being granted on death,’ added Dixon Smith.