No IHT Business Property Relief for industrial units lettings business

Wed 12 Feb 2014

Best (Buller’s executor) v RCC (UKFTT 03217) follows the example set in HMRC v Lockyer, executor of Pawson in refusing BPR on a property letting business.

Best differs from Lockyer  in facts but not in principle. The differences are that:

• in Lockyer the property concerned was a single furnished holiday property that was accepted to be letting business, owned personally by the deceased; and
• in Best the deceased owned shares in a company that owned and managed a “business centre” that consisted of one property divided into commercial units rented out variously for office, storage and light industrial use.

The test of what is a business is the same, whether it is owned personally or by a company. In Best it was accepted that the company in which the deceased owned shares was carrying on a business and the ground for refusal of BPR was that IHTA 1984 s 105 (3) applied which states that “A business or interest in a business, or shares in or securities of a company, are not relevant business property if the business or, as the case may be, the business carried on by the company consists wholly or mainly of . . .  holding investments.”

The company had one long-term major tenant, which accounted for 15% of turnover and the claimant accepted was investment activity, so the discussion concerned the other parts of the business.

Services provided to all tenants were: 1. grass cutting; 2. pest control; 3. cleaning common areas; 4. site security; 5. buildings insurance; 6. water; 7. general plumbing/electrical repairs and maintenance, only to items installed by the company; 8. general reception services including answering telephone calls, sorting incoming and outgoing mail, receiving parcels and receiving visitors and guests; 9. site maintenance and repairs; 10. car parking spaces; 11. providing domestic hot water to toilets, soap and towels or hand dryer; 12. heat and light to offices; 13. heat to common parts of the building.

Of those 13 services only the reception service was accepted by the FTT as more than a normal landlord’s service.

Additional services available were: 1. telephone services, calls and line rental; 2. forklift and driver, if required; 3. secretarial services; 4. photocopying and postage facilities; 5. stationery supplies; 6. incoming and outgoing fax facilities; 7. boardroom hire; 8. additional car parking; and 9. metered electrical supply for industrial occupants.

The company had three full time and two part time employees providing the various services – for example, a site maintenance person, forklift truck driver, receptionist (not least because many units did not have their own landline) plus three security guards.

The client made much of the supply of the forklift due to access difficulties and claimed that the units would have been unlettable otherwise.  However, the FTT was not persuaded that the units would be unlettable without the forklift truck services as other types of businesses not requiring these services could occupy them. 

The FTT held that the forklift and office-type services were non-investment activities but they did not “predominate when considering the activities of the Company as a whole” (the test in applying the decision of the Court of Appeal in IRC v George).   It cannot have helped the claim that income from forklift services was £4,500 against total turnover of £611k.  Even ignoring the agreed investment side of the business, the real nature of the business remains an investment business exploiting the land by granting tenancies and licences. Most of the income from additional services related to recharges for electricity, telephone and postage and was “very modest compared to the licence fee income.”

Considering the nature of the activities and income produced the FTT put the Business Centre “well towards the investment end of the spectrum”.

 Best reinforces the difficulty of claiming BPR for any property letting business which is not really a property-based service business.