IHTM25263 - Investment businesses: Wholly or mainly

The rule excluding investment businesses ( IHTM25261) from business relief applies if the business consists “wholly or mainly” of the excluded categories, IHTA84/S105 (3).

When you investigate this you should look at the main activities of the business, and to its assets and sources of income or gains, over a reasonable period preceding the transfer.

Particular problems are apt to arise where there are several sides to the business, one or more of which appear to fall within the excluded categories. This came up for consideration by the Special Commissioners in the anonymised case of Farmer and another (executors of Farmer, deceased) v Inland Revenue Commissioners (SpC 216), where there was a single business consisting of farming and of letting surplus properties on the farm. In that case it was held that:

• It did not follow from the definition of business in IHTA84/S103 (3) that the level of net profit was the only or principal test. The business and its activities had to be looked at in the round.
• In the instant case the letting of properties was subsidiary to the main farming activity – and although they were more profitable the overall context of the business, the capital employed, the time spent by employees and consultants and the levels of turnover supported the conclusion that the business consisted mainly of farming.

The question of what constitutes qualifying business activity, in the particular context of caravan parks, was addressed in some detail in George v IRC (2003) EWCA 1763. Please see IHTM25279 for more information.