Commissioners of Inland Revenue v George and Another

JurisdictionEngland & Wales
Judgment Date15 July 2002
Date15 July 2002
CourtSpecial Commissioners (UK)

special commissioners decision

Dr John F Avery Jones.

Stedman's Executors
and
Inland Revenue Commissioners
DECISION

1. This is an appeal by the executors of Elsie Fanny Stedman deceased who died on 30 August 1998 against a notice of determination made on 12 November 2001 that the deceased's 85 per cent holding of shares in Dunton Park Caravan Sites Ltd ("the company") did not qualify for business relief from inheritance tax. The appellants were represented by Mr Robert Argles and the Revenue by Mr Peter Twiddy.

2. This issue in the appeal is whether the shares are excluded from business relief by s. 105(3) of the Inheritance Tax Act 1984:

… shares in … a company are not relevant business property … if … the business carried on by the company consists wholly or mainly of … making or holding investments.

3. There have been a number of previous appeals to the special commissioners on the same question concerning caravan sites, the most recent of which was appealed to the High Court in Weston v IR CommrsTAX[2000] BTC 8,041. In that appeal Mr Argles tried to argue that in reality the holders of caravan sites were paying for the services provided by the company rather than for the mere right to enjoy the pitch, but he was not permitted to raise this as a new point in the High Court. He now raises the same argument in this appeal.

4. I was fortunate in having a very comprehensive and clear bundle of documents including full witness statements from Mrs P A Purcell, daughter of the deceased and the director of the company, and Mr I B Loochin FCA who has been the family's and the company's accountant for 25 years, both of whom gave evidence. Mr Loochin and Mr Twiddy both helpfully provided further calculations during the course of the appeal. I asked the appellants if they wanted to introduce further evidence clarifying the amount of the service element and they responded that they did not.

5. The company has had a licence for mobile homes since the 1960s. Mrs Purcell has run the company since her father's death in 1984. The company caries on eight activities which are described in detail in Mrs Purcell's statement but can be summarised as follows.

  1. (2) 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 streetlights 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 ten 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 but 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 ten per cent on sales of caravans on the site. In addition it sells caravans, making a profit on that activity.

  2. (3) 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 function suite on one afternoon each week. It is common ground that this activity is not part of a business of making or holding investments

  3. (4) Caravan storage. There is an area for storage of touring caravans when not in use. Agreements for storage are for periods of six months or a year and relate 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 but 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. (5) The office from which the administration is run.

  5. (6) Warehouse and shop. These are separately let.

  6. (7) Fields. These are let on grazing licences to a farmer.

  7. (8) Insurance. The company has an insurance agency and received commission on insurance sold to residents and owners of caravans stored on the site.

  8. (9) Interest. The company also receives interest on cash balances which is not regarded as a separate business.

6. The site licence granted in 1981 under the Caravan Sites and Control of Development Act 1960 lays down detailed conditions covering density, maintenance of roads and footpaths, hard standings for caravans, siting of caravans, fire hydrants, fire points, fire alarm, maintenance of alarms and fire fighting equipment, fire notices, fire hazards, emergency telephone, water supply to each caravan, drainage, sanitation and washing facilities, car parking, recreation space, tree planting and landscaping, electrical installation to each caravan. Since the licence was granted, considerable improvements had been made, for example, mains drainage had been installed in place of a treatment plant, and fire hoses instead of fire extinguishers.

7. Agreements with residents of the residential homes park are governed by the Mobile Homes Act 1983. This Act provides that agreements cannot be terminated by the company without an order of the court. It also provides for statement of various matters to be set out in a written statement. The agreement with the residents is in a standard form for agreements under that Act issued by the National Park Homes Council and the National Caravan Council. The agreement is that of a licence to occupy a particular site. The company reserves the right of access to the site and the right to move the caravan to a comparable plot for the purpose of carrying out essential works. The licence fee is renewable annually having regard to: (i) the retail price index; (ii) "sums expended by the owner for the benefit of the occupiers of mobile homes on the park"; and (iii) any other relevant factors including the effect of legislation applicable to the operation of the park.

8. The scale of the activity of the company is considerable as can be seen from the numbers of staff. Apart from Mrs Purcell, the director, there are three full-time staff in the office. The club has a full-time steward and three part-time bar staff. There is a site manager, two assistants, three full-time plus one working 30 hours a week, two part-time (one working over 20 hours per week and the other doing odd jobs) maintenance and ground staff, and two cleaning staff, one working 17 hours per week. Mrs Purcell made a breakdown of the activities each member of the staff between the types of activity. Some of the activities are time consuming for the staff. For example, she estimated that reading the 181 electricity meters took one day, issuing the invoices two days plus time spent delivering the invoices, and recording payments took another two days.

9. For corporation tax the company is taxed as a trading company. Extra-statutory Concession B29 provides that where the proprietor of a caravan site carries on trading activities associated with the operation of the site there may be included as a receipt of the trade income from lettings of pitches for static or touring caravans where the letting activity does not of itself amount to a trade. Since the treatment of the company as a trading company may involve an element of concession if the letting activity is not a trade I have not taken this point into...

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