Finch v Commissioners of Inland Revenue

This is an appeal from an Order made by Vinelott J. on the 2nd December, 1982, declaring that in relation to the transfer for value on the death of Edward Watkin Williams Wynn, the part of the transfer which was attributable to "relevant business property" did not extend to any part of the Coed Coch Estate of which the deceased was, at the time of his death, the tenant for life under the Settled Land Act, 1925.

The matter came before Vinelott J. by way of appeal on a point of law pursuant to paragraph 7(3) of the 4th Schedule to the finance Act, 1975, against a determination of the Revenue under paragraph 6(1) of the same Schedule, and it may be convenient, before adverting to the agreed facts, to refer to the principal statutory provisions out of which the point to be determined arises.Section 22(1) of the Finance Act, 1975, provides that on the death of any person after the passing of the Act, capital transfer tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.

Under Section 23(1), the estate is the aggregate of all the property to which the deceased was beneficially entitled, subject to certain exceptions immaterial for present purposes, and as regards settled property, Section 21 applies to it the provisions of Schedule 5, paragraph 3(1) of which provides that a person beneficially entitled in possession in settled property shall be treated as beneficially entitled to the property in which the interest subsists.

Schedules 8 and 9 of the Act contain provisions for relief in respect of property occupied by the deceased for the purposes of agriculture (so long as it has been so occupied for not less than two years prior to the death) and in respect of woodlands. These provisions have an historical relevance in the instant case, but it is unnecessary to refer to them in any detail. For present purposes, the important provisions are those contained in paragraph 14 of the Fourth Schedule, and the provisions of Schedule 10 of the Finance Act, 1976. The former is concerned with the payment and calculation of tax where the estate of the deceased consists of or includes a business or an interest in a business.Paragraph 14(1) enables the person liable to pay tax to pay by instalments where the tax payable on the value transferred by a chargeable transfer made on death "is attributable to the net value of a business or of an interest in a business".

Paragraph 14(2) provides as follows: "For the purposes of this paragraph the net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business; and in ascertaining for the purposes of this paragraph the value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the business would have fallen to be ascertained under this paragraph if the tax had been attributable to the entire business".

Apart from this option to pay by instalments, the Act made no special concessions in relation to a business owned by the deceased or in which he was interested.

Some relief for business property was, however, introduced by the Act of 1976 which, by Section 73, reduced in accordance with the 10th Schedule, the value of a transfer for value where that value was attributable to relevant business property.

Paragraph 2(1) of that Schedule provides: "Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property and the transfer is made after 6th April 1976, the whole or that part of the value transferred shall be treated as reduced by 30 per cent., but subject to the following provisions of this Schedule".

The definition of "relevant business property" is contained in paragraph 3(1), and is as follows:

Finally, paragraph 6 of the Schedule provides that: For the purposes of the Schedule the value of a business or of an interest in a business shall be taken to be the value which would be its net value if determined under paragraph 14(2) of Schedule 4 to the Finance Act 1975."

The problem with which the instant case is concerned arose in the following circumstances. Edward Watkin Williams Wynn (referred to hereafter as "the deceased") died on the 8th September, 1977. At the date of his death he was the life tenant in possession under the provisions of the Settled Land Act, 1925, of a large area of agricultural land known as the Coed Coch Estate, the fee simple in which had been vested in him by a Vesting Deed dated the 10th October, 1969. It is unnecessary for present purposes to recite or consider the documents under which the Settlement arose, and it is sufficient to say that the present plaintiffs and one John Charles Wynne Finch were the Trustees of the Settlement at the date of the deceased's death, and that a grant of Probate limited to the settled land was made to them on the 10th May, 1978. John Charles Wynne Pinch died on the 15th May, 1982. At the date of the death of the deceased, the settled land consisted of some 5,500 acres of agricultural land of which 1,845 acres were in hand. That part of the estate which was in hand was and had been for some years prior to his death occupied and used by the deceased for the purposes of a business of farming and forestry carried on by him as a sole trader. After his death, agricultural relief under the 8th Schedule of the 1975 Act was claimed and granted in respect of 1,000 acres, and no question arises as regards that relief.

The balance of 845 acres comprised 446 acres of woodland in respect of which an election has been made by the Trustees under Schedule 9 of the Act for the charge to Capital Transfer Tax to be deferred until disposal and an area of some 142 acres which had been occupied for less than two years prior to the death of the deceased, and which it is common ground does not qualify for any relief. The balance of 257 acres consists of farmland occupied by the deceased for the purposes of his farming business.

It is the plaintiffs' claim that the 257 acres and the woodland constitute relevant business property for the purposes of paragraph 2 of the 10th Schedule to the 1976 Act and that, accordingly, in so far as the value of the deceased's estate is attributable to the value of that property, that latter value falls to be reduced in accordance with the provisions of that Schedule.

The Revenue declined to accept this contention. They issued a determination accordingly and, the point being solely one of law on undisputed facts, the plaintiffs, with the agreement of the Revenue, issued an Originating Summons for a Declaration that that part of the value transferred on the death which was represented by the value of the settled land occupied and used by the deceased for the purposes of the farming and forestry business was attributable to "relevant business property" as defined by the 10th Schedule of the 1976 Act. That was the short point which fell to be determined by Vinelott J. and with which this appeal is concerned.

The plaintiffs' primary contention before the learned Judge was a very simple one and can be expressed thus.Paragraph 3(a) of the 10th Schedule defines "relevant business property" as including "property consisting or a business or an interest in a business" and paragraph 6 directs that the value of a business is taken to be what would be its net value if determined under paragraph 14(2) of the 4th Schedule to the 1975 Act. When reference is made to that paragraph, it is seen that the net value is "the value of the assets used in the business" (less any relevant liabilities). It is beyond doubt that the relevant portion of the settled land was "used in the business", and accordingly since its value undoubtedly forms part of the value transferred on the death, it falls squarely and literally within the definition of "relevant business property"

It is pointed out that any other conclusion leads to anomalous and even capricious results. Thus it is common ground that if the deceased had in fact been the absolute owner and not merely the life tenant in possession of the property, it would, beyond doubt, have formed part of the business whose value was included in the transfer of value, and would have been relevant business property by virtue of paragraph 3(1) (a)....