Another tax case has shown how difficult it can be for landlords to justify a claim that their income is trading income for the purposes of claiming Business Property Relief (BPR) from Inheritance Tax (IHT).
Where such a claim is successful, the taxable value of the asset in question is reduced by 50 per cent or 100 per cent for IHT purposes.
The asset in this case was a shareholding in a company which ran a business centre in Northern Ireland. The business centre consisted of land and buildings on an eight acre site, which was occupied for light industrial and office purposes.
HM Revenue and Customs concluded that the company was not a trading company, but one whose business was 'wholly or mainly the holding of investments'. The asset did not, therefore, qualify for BPR on the shareholder's death.
It was not disputed that 15 per cent of the income of the company came from a property let to one tenant and that that income was investment income. However, the company provided a variety of other services. As well as a whole series of services that are typical of those provided by a landlord to its tenants, additional services were available. These were:
- Provision of telephone services, calls and line rental;
- Provision of forklift driver, if required;
- Provision of secretarial services;
- Provision of photocopying and postage facilities;
- Acquisition of stationery, if required;
- Provision of fax facilities for both incoming and outgoing correspondence;
- Hire of boardroom;
- Additional car parking for extra vehicles, if required;
- For industrial occupants – metered electrical supply, if required; and
- Provision of a receptionist to answer telephone calls, sort incoming and outgoing mail and take delivery of parcels, together with general reception duties for visitors and guests.
The company argued that these services were sufficient to make the income from the other tenants trading income, not investment income. However, after an extensive review of the income sources of the company and the cost of provision of the services, the First-tier Tribunal concluded that, viewing the business 'in the round', the services provided were insufficient to justify the BPR claim.