Analysis
The late Mrs Maureen Vigne died on 29 May 2012. At that time, she was the sole owner of approximately 30 acres of land. From 2008 a livery business was operated on or from the land, offering a package which included:
- (1) the provision of worming products, including administering them where and when necessary (if an owner was unable and/or unwilling so to do), on a quarterly basis;
- (2) providing the horses with hay feed during the winter months when the grass might not provide a sufficient food source – a hay crop was grown on part of the land, referred to as the hayfield;
- (3) removing horse manure from the fields in which the horses spent most of their time, in order to protect the health of the animals; and
- (4) undertaking a daily check of the general health of each horse, initially through a visual inspection of the horses at large to detect any obvious problems such as lameness, cuts or abrasions or bloating, and, if inspection revealed any cause for concern, undertaking a closer inspection and, if the condition of any given horse required veterinary attention, contacting the appropriate owner and seeking their permission to call the vet (although the owner themselves would be responsible for the vet’s fees), save in the case of an emergency where the livery contract provided for the livery itself to call for a vet to attend.
At first instance, the FTT concluded that Mrs Vigne’s interest in the business constituted ‘relevant business property’ with the consequence that business property relief was available in respect of it for inheritance tax purposes. In particular the judges concluded that:
‘We are left in no doubt that the Gravelly Way business was a genuine livery business which, from 2008 onwards, was developed so as to be a recognisable livery business offering significantly more than the mere right to occupy a particular parcel of land… In our judgement that reality is the provision of enhanced livery, albeit stopping short of part livery (as defined by [Mrs Vigne’s son]), but nonetheless providing a level of valuable services to the various horse owners, which prevents it being properly asserted that the business was mainly one of holding investments.’
HMRC appealed. There was no dispute that the deceased carried on a business; the issue was whether that business consisted ‘wholly or mainly of making or holding investments’. The grounds of appeal were as follows:
- (1) the FTT had incorrectly applied the relevant principles, according to which it was clear that the deceased was carrying on a business which was wholly or mainly an investment business; if similar accommodation and services were provided to humans rather than horses, that would clearly have been the case and it was anomalous that the result should be different simply because the accommodation and services were provided for horses;
- (2) the FTT had erred in law in regarding the ‘critical question’ posed in HMRC v Pawson [2013] as ‘transposing the statutory test’; if it had followed the approach in Pawson (which it was bound to, as a matter of binding precedent) then it would necessarily have dismissed the appeal;
- (3) no tribunal, acting judicially and properly instructed as to the relevant law, could have come to the conclusion that the deceased’s business qualified for relief; the only conclusion reasonably open to the FTT on the facts of the case was that the livery land and stables were held mainly as an investment;
- (4) the FTT had erred in law in framing ‘was this a business of holding investments?’ as the ‘ultimate essential question’ – in doing so, the FTT had formulated a new, incorrect, test and in consequence reached an incorrect conclusion; and
- (5) the FTT had placed various different glosses on the statutory language, all of which were wrong in various different ways, and this had led it to reach the wrong conclusion.
Held:
The appeal would be dismissed, none of its grounds being made out. In deciding whether the business carried on by the deceased consisted wholly or mainly in making or holding investments, the FTT was carrying out its own multi-factorial assessment, on the basis of the primary facts which it had found. None of the relevant primary facts found by the FTT were disputed by the appellant. It was therefore clear that the Upper Tribunal could only overturn the FTT’s decision if it was satisfied that the FTT applied the wrong legal test, or if it plainly misapplied the correct legal test to the facts which it found.
Although HMRC was correct in contending that in parts of the FTT decision the FTT failed to include reference to the ‘wholly or mainly’ part of s105(3) IHTA 1984 in its various repetitions of the statutory test, when the decision was read as a whole it was clear that the FTT had fully in mind the ‘wholly or mainly’ requirement. It explicitly addressed this requirement in its final conclusions, concluding that it was:
‘… the provision of enhanced livery, albeit stopping short of part livery, but nonetheless providing a level of valuable services to the various horse owners, which prevents it being properly asserted that the business was mainly one of holding investments.’
The FTT’s statement to the effect that Henderson J’s comments in Pawson were a transposition of the statutory test, while somewhat unhappily expressed, did not amount to an error of law which undermined the FTT decision as a whole. The FTT was simply taking the view that the proposition expressed by Henderson J as being an appropriate ‘starting point’ for a managed holiday let property business was not necessarily also appropriate for a livery business of the type under consideration in this appeal, which it considered to be fundamentally different. Accordingly, as the FTT did not consider the deceased to have been owning the land ‘in order to obtain an income from it’, the ‘presumption of investment activity’ referred to in the comments of Henderson J was quite simply inapplicable to the present case, and accordingly the statutory wording should be applied de novo and without any presumption of the type referred to by Henderson J in Pawson.
HMRC’s arguments appeared to be based on a submission that any business involving exploitation of land should, as a matter of law, be assumed to be wholly or mainly a business of investment unless the taxpayer could establish otherwise. This clearly overstated the position; it was settled that such an assumption only applies to ‘owning and holding land in order to obtain an income from it’, a much more restricted proposition. When the FTT decision was read as a whole, the FTT applied the correct legal test.
As to whether, given the facts of the case as the FTT found them, its conclusion that the business was not ‘wholly or mainly… making or holding investments’ was one which it was entitled to reach, the court concluded that the FTT was entitled to reach this conclusion.
Deciding whether the particular activities of the deceased amounted wholly or mainly to a business of making or holding investments was an exercise which clearly (in the words of Lord Hoffman in Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000]) ‘involves the application of a not altogether precise legal standard to a combination of features of varying importance’ and (as per Jacob LJ in HMRC v Proctor and Gamble UK [2009]) ‘a multi-factorial assessment based on a number of primary facts’. The court should therefore be slow to interfere and should not reverse the FTT’s decision unless it had erred in principle.
HMRC’s criticisms of this aspect of the FTT’s decision were effectively either based on the presumption that the business was essentially one which, involving the exploitation of land, fell at the ‘investment’ end of the spectrum (a presumption which the FTT declined, and was not required, to make), or they amounted in effect to an assertion that the FTT placed inappropriate weight on the various factors identified by it when making its multi-factorial assessment of whether the business consisted wholly or mainly of making or holding investments.
The Upper Tribunal did not consider that there was enough in these criticisms to justify any interference with the conclusion which the FTT reached. There was no clear bright line between businesses which qualified for the relief and those that did not. The Upper Tribunal was satisfied that the FTT had applied the correct legal test and that the conclusion it had reached was one which it was entitled to reach on the basis of the evidence before it.
JUDGMENT UPPER TRIBUNAL JUDGE KEVIN POOLE AND UPPER TRIBUNAL JUDGE ASHLEY GREENBANK: [1] This is the appeal of the appellant Commissioners from the decision of the First-tier Tribunal (‘FTT’) (Judge Geraint Jones QC and John Adrain FCA), neutral citation [2017] UKFTT 632 (TC). In that decision (‘the FTT Decision’), the FTT allowed the appeal of …Continue reading "Commissioners for HMRC v Personal Representatives of Vigne [2023] WTLR 1259"