SVM111180 - IHT Business Property Relief: Hotels, Bed and Breakfast and Residential Nursing Homes, Holiday lettings, the general admission of people to land and Caravan sites

Hotels, Bed & Breakfast and Residential Nursing Homes

S.105(3) will not usually apply to these businesses in view of the level of services provided. This has been recognised by the courts who have distinguished these businesses from mere exploitation of land.

Only in cases where it is clear that s.105(3) applies should you pursue it. Any doubtful cases must be referred to the Appeals Team before an entrenched position is taken.

Holiday lettings

In the past we have thought that business property relief would normally be available where:

• The lettings were short term, and
• The owner, either himself or through an agent such as a relative, was substantially involved with the holidaymakers in terms of their activities on and from the premises.

Recent advice from Solicitor’s Office has caused us to reconsider our approach and it may well be that some cases that might have previously qualified should not have done so. In particular we will be looking more closely at the level and type of services, rather than who provided them.

Until further notice any case involving a claim for business property relief on a holiday let should be referred to the Appeals Team for consideration at an early stage.

The general admission of people to land

In these types of cases it will be necessary to consider whether the income received amounted to nothing more than payments for the use of the site or whether it related to a material extent to the payment for facilities and services provided on the site.

All cases in this category should be referred to the Appeals Team.

Caravan sites

Caravan sites may present more problems in view of the variety of facilities provided. They may range from land on which caravans are parked and with minimal utilities laid on up to a full-scale holiday camp where the recreational and social facilities are of primary importance and the accommodation is only secondary.

All cases concerned with Caravan sites must be referred to the Appeals Team.

Guidance on the treatment of caravan parks for Business Relief purposes has been given in a number of cases referred to the Special Commissioners.

In Hall and another (executors of Hall deceased) v IRC [1997] STC(SCD) 126, the park contained both static caravans occupied during the season and wooden chalets which were let on long leases. The business's income from rents and standing charges greatly exceeded its income from commissions on the sale of caravans and other sources. It was held that Business Relief was not due.

Powell and another (personal representatives of Pearce deceased) v IRC [1997]STC(SCD) 181 involved a small caravan park with few facilities where the majority of the residents were long-term. The whole of the deceased's income came from pitch fees due from the long-term residents and rents due for hired caravans. Again it was held that Business Relief was precluded by S.105(3).

In the Powell case, the question was raised as to whether the income tax treatment of the business determined whether it should qualify for IHT Business Relief or not. The Special Commissioner decided that it did not. He said:-

"I will first deal with the question of the assessments to Sch D income tax of the income of the business carried on by Mrs Pearce. In my judgement the income tax status of the income of the business is irrelevant in the context of inheritance tax. The district inspector may or may not have been correct in his assessment but his decision can have no relevance to the question which I have to decide. The availability of business property relief depends entirely on the interpretation of the provisions of the Inheritance Tax Act 1984 and I do not believe that the past income tax treatment of the income of the business necessarily throws any light on the inheritance tax position. A person holding a portfolio of stock exchange investments would have his income taxed under Sch D. Nevertheless it is common ground that he would be the holder of investments."

There were two further caravan park cases which came before the Special Commissioners in 1999. In Furness v IRC [1999] STC(SCD) 232, the park had a large number of static caravans and some touring ones and several caravan rallies were held there each year. Caravans could not be occupied throughout the year. The park had a shop and a bar. There was a considerable number of caravan sales – and profits from those sales and from other minor activities exceeded the profits from rentals. Moreover, a "very considerable amount of work (was) undertaken by Mr Furness and his employees looking after the welfare of the residents of the park and maintaining the park and its structures". It was held that Business Relief was due.

In Weston (executor of Weston deceased) v IRC [1999] STC (SCD) 30, on the other hand, Business Relief was held not available in respect of shares in a company which owned a residential caravan park near the M25. The park resembled "a suburban residential development in miniature" but had very few communal facilities. Profits from pitch fees exceeded those from other sources. When the taxpayer appealed to the High Court ([2000] STC1064), the Special Commissioner's decision was upheld.

The most recent case to reach the Special Commissioners is Stedman's Executors v IRC [2002] STC 358. The company owned a residential caravan park complete with a shop and a country club. A sizeable workforce was involved in looking after the residents and the park infrastructure. The income from the club, and the sale of caravans, gas, electricity and water exceeded that from site fees. The Special Commissioner ruled that Business Relief was due. In the High Court, Laddie J reached the opposite conclusion but the Court of Appeal restored the Special Commissioner's decision as it was a reasonable conclusion to come to on the facts of the case.

Each decision about whether Business Relief is due in respect of a caravan park business depends on its own facts – and each business must be looked at in the round. Because of the need for a consistent approach, you should refer all caravan park cases to the Appeals Team at an early stage.