Commissioners of Inland Revenue v George and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Laddie |
| Judgment Date | 27 February 2003 |
| Neutral Citation | [2003] EWHC 318 (Ch) |
| Docket Number | Case No: CH/2002/APP/714 |
| Court | Chancery Division |
| Date | 27 February 2003 |
[2003] EWHC 318 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(REVENUE)
Royal Courts of Justice
Strand, London,WC2A 2LL
The Honourable Mr Justice Laddie
Case No: CH/2002/APP/714
Mr H McKay (instructed by P Ridd, Solicitor of Inland Revenue for the Appellants)
Mr G R A Argles (instructed by Birkett Long for the Respondents)
Hearing dates: 5 —6 February 2003
APPROVED JUDGMENT
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal by the Inland Revenue against a Special Commissioner's Decision which was released on 15 July 2002. The respondents, Philip William George and Ivor Bernard Loochin are executors of the will of Elsie Fanny Stedman, deceased. The deceased held 85% of the shares in a company called Dunton Park Caravan Sites Limited ("the Company"). As the Company's name suggests, it owned land on which it ran and provided services to caravan sites. This appeal concerns whether or not the shareholding is subject to inheritance tax. That is dependant upon the scope and effect of ss 104 and 105 of the Inheritance Tax Act, 1984 (the " IHTA 1984").
Insofar as material to this appeal, s 104(1) provides:
"(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced -
(a) in the case of property falling within section 105(1)(a) … below, by 100% …"
The expression "relevant business property" within that section is defined in s 105 which, insofar as relevant, provides:
"(1) Subject to the following provisions of this section…in this Chapter "relevant business property" means, in relation to any transfer of value, -
(a) property consisting of a business or interest in a business,
(b) securities or a company which are unquoted and which either by themselves or together with other such securities owned by the transferor and any unquoted shares so owned gave the transferor control of the company immediately before the transfer;
(bb) any unquoted shares in a company …
(3) A business or interest in a business, or shares in or securities of a company, are not relevant business property if the business or, as the case may be, the business carried on by the company consists wholly or mainly of one or more of the following, that is to say, … making or holding investments."
In accordance with these provisions, the Deceased's shareholding in the Company is treated as relevant business property and benefits from relief from inheritance tax unless the business it carried on consists wholly or mainly of making or holding of investments. The Special Commissioner's decision was to the effect that the company did not carry on a business consisting wholly or mainly of making or holding investments. The result is that the shares in the Company enjoy total relief from charge to inheritance tax under IHTA 1984.
The Company's business
The Commissioner's decision contains a description of the business conducted by the Company. It is accepted as being accurate:
"5. …..The Company carries on eight activities which are described in detail in Mrs Purcell's statement but can be summarised as follows.
(1) The residential homes park. At the time of the deceased's death this consisted of 167 mobile homes. The caravans are owned by the residents and not by the company. The residents receive connections to sewerage, water, electricity and, if required, calor gas which is supplied either by bottled gas or by the hire of mini gas tanks. The company arranges bulk supply of electricity and calor gas for resale to residents. All electrical installations on the site after the powerhouse to which the mains electricity supply is made belong to, and are maintained by, the Company. The company reads each resident's electricity meter monthly and invoices residents. The Company recovers the cost of electricity for street lights and the office and club in the charge it makes for electricity to the residents. The Company stores gas bottles for supply to residents and invoices residents for deliveries to the gas tanks hired by the Company to residents. It makes a profit on the supply of electricity and gas to residents. Water is supplied to residents at a fixed charge and is paid for by the Company on a metered basis, on which the company makes a profit. The common parts are lighted, the roads are maintained, there is an emergency telephone, fire hydrants, and a visitors' car park. Rubbish is collected weekly and three large skips for garden rubbish are provided for residents and emptied weekly. Residents can use the general store/newsagent which is let at a concessionary rent and not operated by the Company. Residents pay their own general rates and make their own arrangements for telephones. There are car parking spaces and garages available for hire. There is a full-time site manager. A considerable amount of staff time relates to this part of the business; Mrs Purcell apportioned to it 48 per cent of one member and 10 per cent of another member of the office staff, 40 per cent of two full-time, 50 per cent of another working 30 hours per week, 50 per cent of another full-time that seasonal, and either 40 or 50 per cent of the three part-time, members of the maintenance staff and, 40 per cent of the site manager and assistant site manager. The company takes a commission of 10 per cent on sales of caravans on the site. In addition it sells caravans, making a profit on that activity.
(2) Dunton Park Country Club. This operates from a separate building comprising a bar which is open every evening and a suite available for hire to non-members for private functions. Income is also received from fruit machines. Membership is available for a fee to residents and non-residents of the site. Of the 363 residents in 1997/98 117 were members and there were 62 non-resident members and 16 complimentary members. Residents can use the functions week on one afternoon each week. It is common ground that this activity is not part of a business of making or holding investments.
(3) Caravan storage. There is an area for storage of touring caravans when not in use. Agreements for storage are for fixed periods of six months or a year and related to a specific plot, although the Company can move caravans if necessary, for example for maintenance. At the time of the deceased's death there were 443 caravans stored there. There is 24-hour access via a barrier that is operated by a computerised key fob issued to plot holders. All movements are recorded on a computer in the office. The storage area has a high fence and a security guard there throughout the night. The security guard is not required by the agreements with the plot holders that is commercially necessary and satisfies insurance requirements since all caravans are required to be insured by their owners. Caravans stored in this part cannot be occupied. A considerable amount of staff time relates to this part of the business, Mrs Purcell said that 90 per cent of incoming telephone calls related to it and she apportioned to it 50 per cent of five members of the maintenance staff and one member of the office staff, 40 per cent of the site manager and assistant site manager, and 30 per cent of a further full-time member of the maintenance staff. This aspect of the business is liable to VAT.
(4) the office from which the administration is run.
(5) Warehouse and shop. These are separately let..
(6) Fields. These are let on grazing licences to a farmer.
(7) Insurance. The Company has an insurance agency and received commission on insurance sold to residents and owners of caravans stored on the site.
(8) Interest The Company also receives interest on cash balances which is not regarded as a separate business."
Making or holding investments
In Weston v IRC [2000] STC 1064, Lawrence Collins J suggested that s105(3) should be addressed in three steps:
"The questions involved in determining whether the relief is excluded by s105(3) are these: (a) Does the company have investments? (b) Is it 'holding' investments? (e) Does its business 'consist wholly or mainly' of 'holding investments'?" (paragraph 11)
As Mr McKay, who appears for the Inland Revenue, argues, this appeal is not concerned with the second of these...
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