BUSINESS PROPERTY RELIEF : Yes, No, Maybe?

Business Property Relief (BPR) has always proved a useful tool in lowering an estate’s liability to Inheritance Tax although, as with any relief, there are exceptions where it cannot be applied – an example being investment assets.

In order to qualify for BPR an asset needs to have been owned for a minimum period of time – usually two years – and qualify as ‘Relevant Business Property’ as defined in the Inheritance Tax Act 1984.  Recently the “Balfour Case”* has brought into how these two requirements should be interpreted.

Briefly the facts were as follows: in 1968 the Fourth Earl of Balfour inherited a liferent on a Scottish landed estate (i.e. a right to enjoy the use and benefit, as well as the income, of the land for the lifetime of the beneficiary).  The estate consisted of various assets including properties rented to both agricultural workers and others not connected with the estate.  In 2002 the Earl finally was granted a declaration stating he no longer held the estate as a liferenter but as a proprietor.  At this point he entered into partnership with his nephew and heir and together they ran the estate.

The Earl died in 2003 whereupon Her Majesty’s Revenue and Customs refused BPR on the Estate for two reasons, the Earl had not owned the assets for long enough and the estate did not qualify as ‘relevant business property’ as it consisted mainly of investment assets and had not been run for gain.

The case went to the Upper Tribunal on appeal wherein the decision by the First-Tier tribunal to allow BPR was upheld.  Firstly it was held that despite the Earl only having a life interest he had run the Estate as his own making all the key decisions therefore this period of ownership was added to the period of ownership as proprietor hence the assets had been owned for the relevant period.  Secondly, although the estate did contain investment assets, when looked at from a global perspective taking into account a number of factors over a considerable period of time, the Tribunals found that the estate was run for gain and therefore qualified as ‘Relevant Business Property’.

The ramifications of this decision gives hope not only to those fortunate enough to own a landed estate but also to those with diversified business interests whether held by an individual or through a corporate structure.  It may also prove useful where there are questions as to the period of ownership.

For further information please contact Olivia Cooper

*(Brander (representative of James (deceased), Fourth Earl of Balfour) v Revenue and Customs Commissioners (2010) UKUT 300 TCC.

Back to latest news