Pawson (dec’d) v HMRCC [2012] UKFTT 51 (TC)

Analysis

The appellants were the personal representatives of Nicolette Vivian Pawson (Mrs Pawson) and appealed against a notice of determination dated 1 October 2008. The notice had determined that Mrs Pawson’s 25% interest in a property known as Fairhaven, Thorpeness, Suffolk (Fairhaven) was subject to inheritance tax on a deemed disposal at the date of her death. The appellants contended that Fairhaven was entitled to relief as a relevant business property. Fairhaven was a large bungalow overlooking the sea in a holiday area. It had made a profit for each year since 2003, save for 2005/06 when expenditure on redecoration and improvement had caused a loss.

Two issues arose for determination. Firstly, whether for two years before Mrs Pawson’s death the uses to which Fairhaven had been put qualified it for treatment as a relevant business property. Secondly, whether (even if the use amounted to operation of a business) Fairhaven should be excluded from relevant business property on the basis that the business consisted wholly or mainly of holding investments.

Held (allowing the appeal)

1. (1) It is not the case that each of the indicia of business contained in Customs and Excise Commissioners v Lord Fisher [1981] STC 238 must be satisfied in order to establish relevant business property. Some of the criteria may be irrelevant in some cases (para [15]).
2. (2) The exploitation of Fairhaven amounted to the operation of a business for more than two years before Mrs Pawson’s death (para [36]). Applying the Lord Fisher indicia:
3. (i) it was a serious undertaking earnestly pursued (para [37]);
4. (ii) there was reasonable continuity in its operation, in that there was no year in which Fairhaven was not used for lettings and the main period of its occupation being the summer months was only to be expected given the nature of the location (para [38]);
5. (iii) the annual outputs were not de minimis and had a measure of substance (para [39]);
6. (iv) some criticisms of the effectiveness of the operation were possible but, given Mrs Pawson’s age, these were understandable and the basic principles on which the activity was run are regular and sound (para [40]);
7. (v) the activity amounted to making supplies to consumers (para [41]);
8. (vi) the supplies were clearly of a type commonly made by those seeking to profit and was running profitably in the part year when Mrs Pawson died (para [42]);
9. (3) The holding of an investment is not a term of art and must be given the meaning that would be given by an intelligent businessman (para [17]). There are clearly significant services provided to the occupiers of Fairhaven and are a significant part of the reason why the occupiers are prepared to pay what they do for the package of benefits (para [45]). An intelligent businessman would not regard the ownership of a holiday letting property as an investment and would regard it as involving far too active an operation to come under that heading, including the need to find new occupants and provide them with services in excess of those required for bare upkeep (para [50]).

JUDGMENT JUDGE BARLOW: [1] Francesca Louise Thoresby Lockyer and Caroline Vanessa Thoresby Robertson, as the personal representatives of Nicolette Vivian Pawson, who died on 20 June 2006, appeal against a determination dated 1 October 2008, confirmed on review on 26 July 2010, by which the respondents decided that Mrs Pawson’s 25% share in a property …

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