Seymour (Ninth Marquess of Hertford) v Commissioners of the Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 11 November 2004 |
| Date | 11 November 2004 |
| Court | Special Commissioners (UK) |
special commissioners decision
Judith Powell
William Massey QC, instructed by Russell & Co Solicitors, for the Appellant
Peter Twiddy, Assistant Director, Capital Taxes Office, for the Respondents
Business property relief for inheritance tax purposes - Whether the whole or Ragley Hall qualified notwithstanding part of the interior in private occupation - Inheritance Tax Act 1984 section 110Section 110 - Meaning of asset - Building wholly or mainly used for business - No provision for apportionment - Exterior wholly used for business - Single asset - Appeal allowed
The Appeal
1. Mr William Massey QC appeared for the Appellants and Mr Peter Twiddy Director, Capital Taxes Office of the Inland Revenue, appeared for the Respondent.
2. The Appellants are the executors of the Eighth Marquess of Hertford who died on 22 December 1997. They appeal against a determination of the Respondent dated 28 July 2003. The Appellants made the appeal in a letter dated 13 August 2003.
3. This appeal concerns the extent to which business property relief from inheritance tax is available in respect of a chargeable transfer of value that was made by the Eighth Marquess during his lifetime on 18 November 1991. That transfer was made within seven years of his death and, whilst it was at the time it was made, a potentially exempt transfer, the death of the Eighth Marquess within seven years of that time caused it to become a chargeable transfer.
Agreed Facts and Issues
4. There was produced an agreed statement of facts and issues.
5. On 18 November 1991 the Eighth Marquess transferred by way of gift to his son (now the Ninth Marquess) a business of opening an historic house to the public. This business was referred to as the "Ragley Hall Opening". This gift was made by various Deeds of Gift of which one dealt with the transfer of land and buildings known as Ragley Hall, another with the contents of the house and a third with the goodwill of the Ragley House Opening business, copyright in the catalogues/brochures, book debts, cash in hand and at bank, benefit of contracts motor vehicles foodstuffs beverages and all other chattels used in the business and not already given.
6. Ragley Hall is a historic Grade I listed house and prior to the transfer to the Ninth Marquess the freehold was vested in the Eighth Marquess. Both before and after the transfer the same parts of the interior of Ragley Hall were and the same parts were not open to the public.
7. The value transferred by the 1991 transfer of value was, to the extent that it was attributable to the business of the Eighth Marquess, eligible for business property relief from Inheritance Tax under sectionInheritance Tax Act 1984 section 104 104 Inheritance Tax Act 1984 ("IHTA"). The value transferred to that extent fell to be treated as reduced by 100% as a consequence of the effect of section 104 and section 105(1)(a). It was common ground that:-
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(a) The Eighth Marquess had owned the business for at least two years prior to the transfer in 1991 so that the required period of ownership before business property relief is available in respect of any transfer of business property (section 106 IHTA) was satisfied.
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(b) The Ninth Marquess carried on the business from and after the transfer until the death of the Eighth Marquess as required for business property relief to be available (section 113A(3).
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(c) Whilst the exterior was accessible to the public to view as a whole only a part consisting by volume of some 78% was open to the public. Part of the interior consisting by volume of 22% was not open to the public. It was occupied by the Eighth Marquess and the Ninth Marquess (then the Earl of Yarmouth) and their families as their living quarters prior to the gift and part was let at a rent of Ten thousand pounds per annum to the Eighth Marquess after the gift.
8. The Appellants contend that so far as the value transferred by the transfer of value in 1991 was attributable to the value of the freehold of Ragley Hall, the value transferred is eligible for 100% relief under section 104.
9. The Respondent contends that, so far as that value is attributable to 78% of the value of Ragley Hall, the value transferred is eligible for 100% relief but that so far as it is attributable to 22% of the value of the freehold, it is ineligible for relief.
10. It was agreed that the issue is whether, where the whole of the exterior of the single building is open for viewing by the public in the course of the house opening business, but only parts of the interior of the house are open to the public and parts are not so used does section 110 apply: -
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(i) As the Respondents contend, in such a way that the building as a whole is not one of the "assets used in the business" and only that part of the building used by the owner for the purposes of his business is one of the assets used in the business :or
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(ii) As the Appellants contend, in such a way that the building as a whole is one of the assets used in the business, and its value is an ingredient of the "net value of [the] business" within section 110(b) (unless its use is such that it is an "excepted asset" within section 112 which it is agreed is not the case here).
11. It was also agreed that, if the Respondent's contention is correct, 78% of the value transferred in 1991 and attributable to Ragley Hall will be reduced to nil under section 104 and, if the Appellants are correct, 100% of that value will be reduced to nil by that section.
12. There was no oral evidence and there is no dispute about the facts. The principal issue is the application of section 110 IHTA to the agreed facts.
The relevant Legislation
13. The relevant provisions of IHTA (in the form that they were in at the time of the 1991 transfer) are as follows.
14. Section 104 -
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(2) 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-
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(3) in the case of property falling within section 105(1)(a)[(b) or (bb)] below, by 50 per cent (Although the stated relief at the time of the 1991 transfer was 50 per cent, it was increased to 100 per cent by F (No 2) A 1992, Schedule 14. The change had effect in relation to potentially exempt transfers made before 10 March 1992 that proved to be chargeable as a result of a death occurring on or after that date.)
15. Section 105 -
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(2) Subject to the following provisions of this section, and to sections 106, 108 [..], 112(3) and 113 below, in this Chapter "relevant business property" means, in relation to any transfer of value;
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(3) property consisting of a business or interest in a business
16. Section 110 -
For the purposes of this Chapter -
(a) the value of a business or of an interest in a business shall be taken to be its net value;
(b) 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;
(c) in ascertaining the net 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 entire business would fall to be ascertained
17. Section 112 -
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(2) In determining for the purposes of this Chapter what part of the value transferred by a transfer of value is attributable to the value of any relevant business property so much of the last mentioned value as is attributable to any excepted assets within the meaning of subsection (2) below shall be left out of account
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(3) An asset is an excepted asset in relation to any relevant business property if it was neither -
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(a) used wholly or mainly for the purpose of the business concerned throughout the whole or the last two years of the relevant period as defined in subsection (5) below, nor
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(b) required at the time of the transfer for future use for those purposes
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(4) Where part but not the whole of any land or building is used exclusively for the purposes of any business and the land or building would, but for this subsection, be an excepted asset or, as the case may be, prevented by subsection (3) above from being relevant business property, the part so used and the remainder shall for the purposes of this section be treated as separate assets and the value of the part so used shall (if it would otherwise be less) be taken to be such proportion of the whole as may be just
The documents of transfer and other documents
18. The agreed bundle of documents included copies of the deed of gift made in 1991 and of the lease back made on the same day. The deed of gift was a very simple document and the subject matter of the gift was described as follows:
ALL THAT piece or parcel of land situate in the Parish of Arrow in the County of Warwick TOGETHER WITH the house gardens stables and outbuildings known as Ragley Hall containing an area of Nine decimal point nine zero five hectares as the same is for identification only shown edged red on the Plan annexed hereto and more particularly described below:-" (and there followed a reference to the relevant Ordnance survey number details).
19. The subject matter of the lease back was "the North Flat" which it is agreed forms a part of the 22 per cent of Ragley Hall - the value of which the Respondent says does not qualify for business property relief. The Appellants accept that the value of the lease was an asset of the estate of the Eighth Marquess at the time of his death. It is agreed that the parts of Ragley Hall not used in the business were the same both before and after the gift in 1991.
20. Also included in the bundle of documents is the gift of the goodwill attaching to the business. This included, in addition...
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