Managed Industrial Estate NOT ELIGIBLE for Business Property Relief
The First-tier Tribunal has held that a trading estate management company did not qualify for business property relief on the basis that its activities were predominantly investment-related.
It is well known that business property relief (BPR) is not available on transfers of business property in cases where the business in question consists ‘wholly or mainly’ of making or holding investments. However, where a business owns investment property, relief may be available if the business can demonstrate that its activities are predominantly non-investment based. This will generally be where significant additional services (that amount to a trade) are delivered.
The recent case of Best v HMRC  UKFTT 077(TC) concerned the availability of BPR on unquoted shares held in a family company that owned a trading estate. The units on the estate were let out. In addition to letting the units (and supplying standard services such as light, heat and parking), the business also provided a range of additional services including, administration staff, secretarial services, postal facilities and a fork lift truck together with a full-time driver.
Nonetheless, the First-tier Tribunal found that ‘looking at the business in the round’ the additional services were not sufficient to allow the business to be characterised as a trading business and as such the shares in the company were not relevant business property.
This decision along with the recent decision in the Upper Tax Tribunal case of Pawson v HMRC  UKUT 050 (TC) demonstrates that HMRC are consistently taking a firm line with what amounts to ‘above and beyond’ as compared to the type of activities that one might expect to be undertaken in conjunction with running a property business.
Investors falling into this category ought to liaise with their professional advisers to gain an understanding as to whether business assets would or would not qualify for relief. Equally their advisers may find it useful to consider the facts of these recent cases and compare any activities conducted by their clients who may be seeking to obtain BPR.
We are reminded that the availability of BPR for any particular business will then depend on the activities and to some extent, the assets of the business in question. The appeal of “BPR Qualifying” investments for those wishing to carry out estate planning is relatively well known – broadly speaking, two years ownership to secure 100% relief from IHT with full access and control for the owner.
As well as depending on the business actually qualifying for BPR, which the promoters of “BPR schemes” will be very keen to ensure will be the case, investors also need to weigh up the “investment risk” of the “BPR qualifying investment” in relation to their overall investment strategy, taking into account the ‘aspired to’ benefit of (usually) very effective IHT planning.
For many, “BPR investment” will form an appropriate part of an overall portfolio.
For SME owners the “BPR qualifying asset” namely their interest in their OWN business will not usually have such a rigorous “suitability” or “asset allocation” test applied to it.
As a result, when considering the overall asset allocation model for an SME owner , including their interest in their own SME, one may find that they are alarmingly “high risk” and substantially “overweight” in unquoted securities.
That might spark an interesting review or conversation on the importance of diversification to reduce risk… with their financial planner.