Trustees of the Nelson Dance Family Settlement v Her Majesty's Revenue & Customs, SPC 00682
| Jurisdiction | UK Non-devolved |
| Judge | Dr John Avery Jones CBE |
| Judgment Date | 08 May 2008 |
| Respondent | Her Majesty's Revenue & Customs |
| Appellant | Trustees of the Nelson Dance Family Settlement |
| Reference | SPC 00682 |
| Court | First-tier Tribunal (Tax Chamber) |
Spc00682
INHERITANCE TAX – business property relief – whether necessary that a business is transferred rather than business assets – no – appeal allowed
TRUSTEES OF THE NELSON DANCE FAMILY SETTLEMENT Appellants
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Special Commissioner: DR JOHN F. AVERY JONES CBE
Sitting in public in London on 30 April 2008
William Massey QC, counsel, instructed by Payne Hicks Beach, for the Appellants
Nicholas Caddick, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
© CROWN COPYRIGHT 2008
DECISION
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The Trustees of the Nelson Dance Family Settlement appeal against a Notice of Determination of 23 April 2007 that:
“In relation to the transfer of East Anton Farm, East Anton, Andover, Hampshire and part of Finkley Down and Finkley Manor Farms, Andover, Hampshire on 26 November 2002 to the trustees of the Nelson Dance Family Settlement by Nelson Ernest Victor Dance
That having regard to the provisions of section 105 Inheritance Tax Act 1984, none of the value transferred was attributable to the value of relevant business property.”
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This is a decision on a preliminary issue, namely
“Whether for business property relief to be available under s.104 Inheritance Tax Act 1984 (‘IHTA’) there has to be: -
(a) As the Appellant asserts, a transfer of value which has resulted in a reduction in the value of ‘relevant business property’ (as defined by s.105 IHTA) in the transferor's estate, regardless of whether an actual transfer of the ‘relevant business property’ takes place; or
(b) As the Respondent asserts, a transfer of value that is a transfer of property that meets the definition of ‘relevant business property’ contained in s.105 IHTA.”
The Appellants were represented by Mr William Massey QC, and the Respondents (“the Revenue”) by Mr Nicholas Caddick.
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The issue arises because although the transfer of value in issue qualifies for agricultural relief that relief is limited to the agricultural value of the land. Here the land has development value and so the Appellants claim business relief for the excess value.
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The following facts are agreed or assumed for the purposes only of the determination of the Preliminary Issue, and without prejudice to each party’s right in any further proceedings before the Special Commissioner to make submissions of fact and to lead evidence contrary to the facts agreed or assumed, and in particular to the Appellants’ right to submit that Mr Dance transferred a business or interest in a business (contrary to assumed fact (9) below).
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Nelson Dance (“Mr Dance”) made a transfer of value, as defined in s3 IHTA (“the Transfer of Value”) on a date as yet unconfirmed in late 2002 or early 2003 (“the Transfer Date”).
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Immediately prior to the making of the Transfer of Value, Mr Dance owned and carried on the business of farming as a sole trader (“the Business”).
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(i) The Business did not consist wholly or mainly of one or more of the following, that is to say dealing in securities, stocks or shares, land or buildings or making or holding investments;
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(ii) Mr. Dance owned the Business throughout the two years immediately preceding the Transfer of Value.
(iii) The Business was not subject to a binding contract for its sale at the time of the Transfer of Value.
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The assets used in the Business included land and buildings (“the Land and Buildings”), namely some 1,735 acres of agricultural land near Andover, Hampshire, consisting of Upper and Middle Wyke, Finkley Manor Farm and East Anton Farm, Icknield Way plus two cottages Nos 1 and 2 East Anton Farm Cottages.
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Prior to the Transfer of Value Mr Dance executed a settlement (the Nelson Dance Family Settlement) upon discretionary trusts such that the property which came to be comprised in it would be “relevant property” as defined in s58 IHTA 1984.
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On the Transfer Date, Mr Dance executed two declarations of trust (“the Declarations of Trust”), by virtue of which East Anton Farm comprising approximately 141 acres and the two cottages Nos 1 and 2 East Anton Farm Cottages, and part of Finkley Manor Farm comprising 218 acres, became held upon the trusts of the Settlement.
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The Declarations of Trust gave rise to the Transfer of Value.
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The land referred to at Paragraph (6) above qualified as agricultural property for the purposes of s.116 IHTA, was occupied by Mr. Dance for the purposes of agriculture throughout the period of two years ending with the date of the Transfer of Value, and was not subject to a binding contract for sale at the time of the Transfer of Value.
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Upon the Transfer of Value Mr Dance did not transfer a business or an interest in a business to the Trustees.
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Mr Dance died on 1 April 2004.
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Section 104(1) of the Inheritance Tax Act 1984 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)…by 100 per cent…
But subject to the following provisions of this Chapter.”
Section 105(1)(a) reads “property consisting of a business or interest in a business.” The value of a business is defined in s 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;…”
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Each party made a statement of case followed by sequential skeleton arguments so that helpfully each had commented on the other’s arguments before the hearing.
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Mr Massey, for the Appellants contends essentially that Mr Dance’s estate included relevant business property (the Business), that by reason of the Transfer of Value the whole of the value transferred (the amount by which the value of his estate was less than it would be but for the disposition, see s 3(1)) was attributable to the value of the relevant business property (being the net value of the Business, see s 110); accordingly the whole of the value transferred is treated as reduced in the case of [property consisting of a business or an interest in a business, see s 105(1)(a)] by 100%. The policy of the relief is not to encourage transfers of businesses but to encourage the carrying on of business, and so there is no policy reason to restrict the relief to gifts of businesses. The relief operates on death even if the business then ceases.
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Mr Caddick, for the Revenue contends essentially that the reference to the value of the relevant business property (not the whole or part of the value transferred as is referred to twice in the opening words of s 104), implies that the transfer must be of a business (including a part of a business capable of being a separate business), but not merely business assets. It is a necessary part of his argument that the reference in s 104 to value transferred does...
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