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The first category of relevant business property (IHTM25141) is 鈥榩roperty consisting of a business or interest in a business鈥�, IHTA84/S105 (1)(a). This includes property such as a sole trader's business and a partner's share in a partnership carrying on a business. It can include situations where land occupied by the business was settled property (IHTM25243) and the transfer is on a death.

We had previously considered that the property must consist of a business as a whole or a share or interest in such a business, and that transfers of individual assets were not included, whether they were included in the business or just used in the business. However, in the case of HMRC v Trustees of the Nelson Dance Family Settlement [2009] EWHC 71 (Ch), the High Court found that land and buildings transferred into trust was 鈥榬elevant business property鈥�.

If you have any doubts on the application of the Nelson Dance decision, seek advice from Technical. The decision is also relevant when considering transfers from partnerships听(IHTM25250).

If the transferor owned an asset used in another person鈥檚 business, it is not within IHTA84/S105 (1)(a):

Example

Gerald鈥檚 estate includes property occupied by Sanjay for the purposes of Sanjay鈥檚 business. Gerald has no interest in the business. The property cannot qualify for business relief on Gerald鈥檚 death under IHTA84/S105 (1)(a) (and it does not qualify under any of the other paragraphs of IHTA84/S.105 (1)).

On a partly-exempt transfer of a whole business, relief may be available for chargeable specific gifts of part only of the assets of the business (the transfer of the remainder of the business being exempt).

Is there a business?

Normally it is clear whether there is 鈥榩roperty consisting of a business鈥�.聽 Occasionally it is not clear and, in cases where a significant amount of tax is at stake, you should investigate what activities were carried out in the course of the purported business to establish whether a business, in fact, exists.

Before 1 June 2022, we followed the approach taken in the VAT case Commissioners of Customs & Excise -v- Lord聽Fisher [1981] STC 238 where, at page 245, Gibson J identified six indicators, some or all of which should be satisfied to identify an activity or activities as a business. These indicators are equally applicable as a test for Inheritance Tax. He said a business will exist where the activity

• is 鈥渁 serious undertaking earnestly pursued鈥� or 鈥渁 serious occupation, not necessarily confined to commercial or profit-making undertakings鈥�
• is 鈥渁n occupation or function actively pursued with reasonable or recognisable continuity鈥�
• has 鈥渁 certain measure of substance as measured by the quarterly or annual value of . . . supplies made鈥�
• was 鈥渃onducted in a regular manner and on sound and recognised business principles鈥�
• is 鈥減redominantly concerned with the making of ... supplies to consumers with consideration鈥�
• and whether those supplies 鈥渁re of a kind which, subject to differences in detail, are commonly made by those who seek to profit by them鈥�.

Following more recent court cases, on 1 June 2022 HMRC published a new approach to determining whether a business exists or not in Revenue & Customs Brief 10 (2022): VAT 鈥� business and non-business activities. A two-stage test will now be used, where appropriate, to determine whether an activity constitutes a business activity:

• Stage 1: The activity results in a supply of goods or services for consideration.
• Stage 2: The supply is made for the purpose of obtaining income therefrom (remuneration).

You can find more information on these two tests in the Revenue & Customs Brief referred to above, and also in the VAT Business/Non-Business Manual at VBNB30200.