Analysis
Mrs Ross originally owned a hotel called the Port Gaverne Inn in Cornwall and later acquired eight holiday cottages across the road called the Green Door Cottages. When she was no longer fit enough to run the business, the hotel was sold though its new owner agreed to provide services to guests renting out the cottages. A handyman was employed by the partnership which owned the cottages and other properties. When Mrs Ross died on 7 November 2011, she was entitled to a two-thirds share in the partnership and the total value of all the properties held by it amounted to £1.5m. The appellants claimed business property relief from inheritance tax on the value of Mrs Ross’ share in the partnership. On 27 October 2015 a determination was issued by HMRC that the property comprised in the partnership did not qualify for business property relief because it was property of a business which consisted mainly of making or holding investments. The appellants requested a statutory review, which confirmed the determination issued by HMRC. The appellants appealed.
Held (dismissing the appeal):
The appellants adduced evidence demonstrating that expenditure on the provision of holiday services was substantially more than that allocated to property investment costs and argued that the level of services provided suggested that the partnership business was providing services more akin to a hotel than typical self-catering accommodation. Whilst it was accepted that the services provided by the partnership were above the standard level of services for self-catering accommodation, especially the provision of services by the hotel and resident on-site caretaker, the test of the nature of the business was qualitative, not quantitative, and they were unable to overcome the high hurdle established by case law that the owning and holding of land in order to obtain an income from it is generally to be characterised as an investment activity and, further, that such an investment may be actively managed without losing its essential character as an investment. There was a qualitative difference between what the hotel (or any hotel) could provide to guests and what was provided by the cottages, and no amount of quantitative differences as to extent of the services provided could change the quality of the business from something which consisted of renting out self-catering accommodation to something closer to a mainly non-investment business like a hotel. Thus, the business consisted mainly of the holding of an investment in property and was not entitled to business property relief.
JUDGMENT RACHEL SHORT J: [1] This is an appeal against a determination issued by HMRC on 27 October 2015 to the executors of the estate of Mrs Marjorie Ross under s221 of the Inheritance Tax Act 1984 stating that the property comprised in the partnership of which Mrs Ross was a partner (‘the Green Door Cottages Partnership’) did …Continue reading "Executors of the estate of Ross v HMRC [2018] WTLR 1417"