IHTM25152 - Business interests: Property consisting of a business or a business interest

The first category of relevant business property ( IHTM25141) is "property consisting of a business or interest in a business”, IHTA84/S105 (1)(a). This includes property such as a sole trader's business and a partner's share in a partnership carrying on a business, but the property must consist of a business as a whole or a share or interest in such a business. Transfers of individual assets are not included, whether they are comprised in the business or just used in the business (there are special rules for partnerships ( IHTM25250). So for example these situations are not within IHTA84/S105 (1)(a):

• an asset used in another person’s business

Example

A’s estate includes property occupied by a relative for business purposes. A has no interest in the business. The property cannot quality for business relief on A’s death under IHTA84/S105 (1)(a) (and it does not qualify under any of the other paragraphs of IHTA84/S.105 (1)).

• a lifetime transfer of an individual asset of a business by a sole proprietor

but

• on a partly-exempt transfer of a business as a whole, relief may be available for chargeable specific gifts of part only of the assets of the business (the transfer of the remainder of the business being exempt).

Normally it is clear whether there is “property consisting of a business”. Occasionally it is not clear and, in cases where a significant amount of tax is at stake, you should investigate what activities were carried out in the course of the purported business to establish whether a business, in fact, exists.

This category can include situations where the land occupied by the business was settled property ( IHTM25243)

Cases where this is particularly in point are where relief is claimed for furnished lettings or caravan sites ( IHTM25271).

In the VAT case Commissioners of Customs & Excise -v- Lord Fisher [1981] STC 238 at page 245 Gibson J identified six indicators, some or all of which should be satisfied to identify an activity or activities as a business. These indicators are equally applicable as a test for IHT purposes. He said a business will exist where the activity

• is “a serious undertaking earnestly pursued” or “a serious occupation, not necessarily confined to commercial or profit-making undertakings”
• is “an occupation or function actively pursued with reasonable or recognisable continuity”
• has “a certain measure of substance as measured by the quarterly or annual value of . . . supplies made”
• was “conducted in a regular manner and on sound and recognised business principles”
• is “predominantly concerned with the making of ... supplies to consumers with consideration”
• and whether those supplies “are of a kind which, subject to differences in detail, are commonly made by those who seek to profit by them”.