McCall & anr v HMRCC [2009] NICA 12

Analysis

The appellants were the personal representatives of Mrs Eileen McClean (the deceased), who died on 8 January 1999. The appellants claimed that 33 acres of agricultural land in the deceased’s estate, which at the date of the deceased’s death was valued at £5.8m, owing to it having been zoned for development use, was business property for inheritance tax (IHT) purposes. The respondent, HMRC, determined that no part of the value of the agricultural land transferred on death was attributable to the value of any relevant business property.

The land comprised a number of fields in grass. The Special Commissioner found that the only work done on the land was done by the deceased’s son-in-law or by graziers to whom the lands were ‘let’ under seasonal grazing arrangements known as ‘agistment’ arrangements. The arrangements for the agistments were agreed orally and usually confirmed in writing. A price was agreed at a rate per acre, in exchange for which the graziers were allowed to let their animals graze the land.

The activities carried out by the deceased’s son-in-law on the land included:

1. (i) inspection of the perimeter fencing and walls, gates and water supply;
2. (ii) removal of rubbish, unblocking of drains, emergency repairs to vandalised or damaged fencing and tending the drinking troughs; and
3. (iii) informing the grazier of any problems he observed in their animals.

Under s104 of the Inheritance Tax Act 1984, where the whole or part of the value transferred on death related to relevant business property, the value so transferred would be treated as reduced by 100%. Relevant business property consisted, for the purposes of the instant case, of ‘property consisting of a business or interest in a business’. Section 105(3), however, provided that a business or interest in a business was not relevant business property if it consisted of ‘making or holding investments’. The issue was whether the land failed to qualify as relevant business property on the grounds that it was property held for the purpose of holding investments (it was clear that no investments had been made in the present case).

The appellants’ appeal against the decision of HMRC to the Special Commissioner was dismissed. The Special Commissioner found that a business was being carried on in respect of the letting of the land, but concluded that the business was one that consisted wholly or mainly of the holding of investments. He found, in summary:

1. (1) That the deceased was not, as had been submitted by the appellants, in the business of providing a service to the graziers in providing grass for their animals. The grass was not made available principally through the tending of the land by the son-in-law but by virtue of the letting. The activities of the business consisted simply of the making available of the land without the separate provision of any substantial other goods or services.
2. (2) The deceased did not use the land for animal husbandry.
3. (3) The land was used as an investment to make part of a living from it. Although the graziers did not exclusively lease the land such that they had tenancies, and the deceased retained paramount occupation, their use of the land was sufficiently exclusive to be clear that the land was being used as an investment.
4. (4) The way in which the land was managed and let out to graziers could not, as the appellants had argued, be equated with the provision of hotel accommodation, the provision of kennelling for cats and dogs or the running of a ‘pick-your-own fruit farm’ (all such uses would qualify for business property relief).

The appellants appealed to the Court of Appeal in Northern Ireland.

Held (dismissing the appeal):

1. (1) The appellants argued that, pursuant to Edwards v Bairstow [1956] AC 14, the Special Commissioner had either committed an error of law in his decision or that his decision on the facts was perverse. In particular, the appellants disputed the Special Commissioner’s finding that the deceased was not in the business of providing a service to the graziers by providing grass for their cattle or sheep. It was argued:
2. (i) that the grass had been made available to the graziers through the conscious decision of the deceased to tend the land and that this activity constituted the operation of a qualifying business;
3. (ii) that the cultivation of grassland for the seasonal grazing of the grass by a grazier’s cattle was an operation of husbandry;
4. (iii) there was no distinction in principle between a business which involved the growing of grass for cutting and silage (which would qualify) and the business of growing grass for consumption by cattle under grazing licences;
5. (iv) the Special Commissioner had misdirected himself in treating the agistment arrangements as equivalent to the letting of the land; and
6. (v) the proper way to analyse the situation was that the relationship between the deceased and the graziers was more akin to a relationship between a hotelier and a guest or between a pick-your-own fruit farmer and customers who picked the fruit than a relationship between a landlord and tenant where the landlord merely maintains the land.
7. (2) The term ‘business of holding investments’ was not a term of art. The Special Commissioner had concluded correctly that the test to be applied was that of an intelligent businessman who would be concerned with the use to which the asset was being put and the way it was being turned to account: Weston v IRC [2001] WTLR 1217, Tootal Broadhurst Lee Co Limited v IRC [1949] 1 All ER 261 and IRC v Dosoutter Brothers Limited [1946] 1 ALL ER 58 applied. Land was generally held as an investment where gain was derived from payment to the owner for the use of the property: Cooke (Inspector of Taxes) v Medway Housing Society [1977] STC 90 applied. The appellants had argued that there had been a misapprehension on the Special Commissioner’s part of the proper import of the decisions in Desoutter and Tootal but there had been none.
8. (3) The appellants relied heavily on the authority of George and argued that if the Special Commissioner had properly understood and applied that decision he would have concluded that the true nature of the business was not that of holding an investment. That case involved a company that owned a caravan site and which let out sites for caravans to residents who paid site fees and received connections to services from which the company earned a profit. The company also earned profit from selling caravans, operated a club for residents and non-residents, stored caravans not in use, let out a warehouse and shop, and let out fields for grazing. It also operated an insurance agency for profit. The deceased in that case owned 85% of the company’s shares. The Court of Appeal held that the business primarily involved the provision of services and not merely the business of holding investments. However, the facts of George were very different from the instant case and that decision did not lead to the conclusion that the business in this case fell to be considered as a kind of grass production business. George was distinguished.
9. (4) It was clear from the authorities that a landowner who derived income from land or a building would be treated as having a business of holding an investment, notwithstanding that in order to obtain the income he carries out incidental maintenance and management work, finds tenants and grants leases: Marsh v IRC [1995] STC 5, Burkinyoung v IRC [1995] STC 29 and Weston applied.
10. (5) The appellants’ central contention was that the agistment arrangements, rather than being viewed as analogous to a lease of premises, amounted to a grass production business and that the Special Commissioner’s finding that the deceased retained paramount occupation supported this. However, the court’s assessment turned not on the nature of the rights enjoyed by the graziers, but on an analysis of what was happening on and in relation to the land with a view to ascertaining whether, viewed as a whole, the business fell on the investment or non-investment side. As had been held in George, there was a spectrum of possible factual scenarios, at one end of which was the exploitation of land by granting a tenancy together with sufficient activity to make it a business and at the other end of which was a situation where land was being exploited but the element of services meant that there was a trade such as running a hotel or shop from the premises.
11. (6) The Special Commissioner had properly apprehended the law and the ultimate conclusion he reached was one he was entitled to reach having regard to the evidence and his findings of fact. Analogies drawn by the appellants with grass disposal businesses, a hotel, a dog kennelling business or a pick-your-own fruit business were not apt. The deceased’s business consisted of earning a return from grassland whose real and effective value lay in its grazing potential; the activities carried out by the son-in-law were all related to enabling that potential value to be released. No substantial services, such as fertilising the land, were provided by the deceased to the graziers.
12. (7) Per Deeny J, the exception in s105(3) was directed more towards one dealing in and holding securities, shares or properties in a portfolio rather than the management by the deceased in the present case of a single farm business, which might otherwise be inherited intact by a daughter or son. Taking a purposive approach to s105(3) in this way might lead to a different outcome to a literal approach, but this had not been argued before the Special Commissioner or the Court of Appeal except faintly.

JUDGMENT GIRVAN LJ: Introduction [1] This matter comes before the court by way of an appeal from a decision of the Special Commissioner made on 7 April 2008 whereby he dismissed the appellants’ appeal against a determination made by the respondents (the Revenue) on 2 September 2005. The determination related to land comprising 33 acres …

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