Philip Norman McCall Bernard Joseph Anthony Keenan (personal representatives of Eileen McClean dec'd) v Her Majesty's Revenue & Customs, SPC 00678

Spc00678

Inheritance tax – Exempt transfers and relief – Business Property – Relevant Business Property – Fields let out under ‘conacre’ or agistment arrangements to graziers – Whether a business – Work carried out by son-in-law while owner’s mental capacity failed – Whether business belonged to the landowner – Whether business excluded from relief as consisting wholly or mainly of making or holding investments – Section 105(3) IHTA 1984

PHILIP NORMAN McCALL

BERNARD JOSEPH ANTHONY KEENAN

(PERSONAL REPRESENTATIVES OF EILEEN McCLEAN (dec’d) Appellant

• and –

Special Commissioner: CHARLES HELLIER

Sitting in public in Belfast on 8, 9, 10 and 11 January 2008

William Massey QC and Timothy Evans, instructed by J W McNinch & Son, for the Appellants

Nicolas Hanna QC, instructed by the solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2008

1. Until her death in January 1999 Mrs McClean owned about 33 acres of farmland at Ballyclare in County Antrim. She had a house adjoining the land, and one of her two daughters, Mrs Mitchell, lived with her husband, Mr Mitchell, next door. Mrs McClean’s other daughter lived in County Tipperary. Unfortunately the relationship between Mrs McClean’s two daughters was somewhat strained.

2. Mrs McClean inherited the land from her husband on his death in 1983. She did not farm the land herself, but it was let under conacre (or more technically agistment) agreements to local farmers, and those farmers’ beasts grazed the land during the months when the grass grew. Throughout this period Mr Mitchell tended the land as I shall explain later.

3. As Mrs McClean grew older her memory and mental capacity diminished. Prior to her husband’s death she had been an active decisive woman, but thereafter there was a rapid decline. In 1986 or 1987 she started living with Mr and Mrs Mitchell for most of each day returning to her own house only for a couple of hours.

4. After her husband’s death Mrs McClean used the services of local land agents to let the fields. As Mrs McClean’s mind failed Mr Mitchell became more involved with the arrangements.

5. In 1992 Mrs McClean went to visit her daughter in Tipperary. She was taken there by neighbours in their car. Mr and Mrs Mitchell expected it to be a short visit but Mrs McClean remained in Tipperary until her death some 7 years later. Her mind continued to deteriorate during that time.

6. While Mrs McClean was away Mr Mitchell continued to tend the fields and also organised their letting usually through a land agent. The rents were paid into Mr and Mrs Mitchell’s bank account and were not paid out to Mrs McClean. Mr and Mrs Mitchell continued to look after Mrs McClean’s house.

7. The local council zoned land which included Mrs McClean’s fields for development use. As a result at the time of her death the market value of the land was £5,800,000 whereas its agricultural value was only £165,000.

8. In this appeal Mrs McClean’s personal representatives claim that the land is ‘relevant business property’ within section 105 Inheritance Tax Act 1984. If it is then the whole of the value of the land falls out of charge to IHT at her death; if it is not then only the agricultural value will fall out of charge.

The Legislative Provisions

9. Section 105(1) IHT provides that ‘relevant business property’ means:

… (a) property consisting of a business …;

Subsection (3) provides that:

“A business …[is] not relevant business property if the business … consists wholly or mainly of … making or holding investments.”

Section 103(3) provides that a “ ‘business’ includes a business carried on in the exercise of a profession or vocation, but does not include a business carried on otherwise than for gain”.

10. Section 106 provides that ‘Property is not relevant business property … unless it was owned by the transferor throughout the two years immediately preceding the transfer’. The date of the transfer for these purposes was the date of Mrs McClean’s death.

11. Section 104 provides that the transfer of value which occurred on Mrs McClean’s death is to be treated as reduced by the value of any relevant business property falling within section 105(1)(a).

12. Section 110 provides that “the value of a business … shall be taken to be its net value”; and “the net value of a business is the value of the assets used in the business (including goodwill)”.

13. Therefore if Mrs McClean at the date of her death owned a business in which the land was used, had owned that business for at least 2 years prior to her death, and that business was not carried on otherwise than for gain and did not consist wholly or mainly of the making or holding of investment and was carried on for gain, then the value of her estate at death is to be reduced by £5.8m.

14. On 2 September 2005 the Respondents made a determination that the fields were not relevant business property. The Appellants appeal against that determination.

15. The issues before me were these:-

(i) Did Mrs McClean own a business (in which the land was used) at the date of her death? Under this heading two particular issues arise: (a) whether arrangements encompassing the letting of the land in agistment can properly be called a business; and (b) if it was a business whether the arrangement under which it was organised by Mr Mitchell after 1992 and Mrs McClean’s mental state prior to her death permit the conclusion that the business was owned by Mrs McClean. I deal with the first issue under the heading ‘A Business’, and the second under the heading ‘Whose Business?’

(ii) If Mrs McClean owned a business at the date of her death, had she owned it for a period of at least two years immediately preceding her death?

It was common ground before me that if Mrs McClean had at the date of her death owned a business in which the fields were used, then she had owned it for the two year period. Accordingly I shall have nothing further to say about this issue.

(iii) If there was a business, was it carried on “otherwise than for gain”?

The Respondents do not dispute that, if there was a business, it was not carried on otherwise than for gain. Accordingly I have nothing further to say about this issue.

(iv) Was the business within the proscribed categories in section 105(3) – namely was it a business which consisted wholly or mainly of the making or holding of investments?

The Respondents say that if there was a business then it did so consist.

I deal with this issue under the heading “Investment Business”.

The Evidence and the Facts

16. I heard oral evidence from Mr Tom Mitchell, who provided two witness statements, and from Michael McClelland a land agent (now retired) in Ballyclare who had acted in relation to the fields, and Phillip McCall one of the personal representatives of Mrs McClean both of whom provided witness statements. I also had a bundle of copy documents including plans of the fields. There was a statement...