Executors of Cox v Commissioners for HMRC [2020] WTLR 1239

WTLR Issue: Winter 2020 #181





This case was an appeal against a notice of determination issued by HMRC under s221 Inheritance Tax Act 1984 (IHTA) which had ruled that the deceased’s furnished holiday lettings business did not qualify for business property relief (BPR). The only dispute was whether the business consisted ‘mainly’ of ‘holding investments’ within the meaning of s105(3) IHTA.

The business began in 1989 with one flat and expanded in 1991 and 1996 with the purchase of further flats in the same building. It continued until the deceased’s death on 27 December 2014.

The tribunal heard evidence estimating that the business required 1,260.75 hours of work per year on administration, services to guests, laundry, gardening, cleaning, and maintenance. In addition to accommodation, guests were provided with books, DVDs and leaflets about local attractions; golf clubs, tennis and badminton racquets, beach balls, crab lines, fishing nets, frisbees, and buckets and spades; use of a former tennis court area, summer house, garden furniture, and barbeque facilities; consumables such as tea, coffee, oil, salt, pepper, cling film, tin foil, kitchen rolls, washing-up liquid, dishwasher tablets, and handwash; a guest information pack; TV-DVD player, wi-fi, games, and puzzles; bedding and towels, dishcloths and tea towels; and soap, shower gel, and toilet paper.

The executors also adduced evidence from former guests indicating that the deceased had provided dog-sitting and baby-sitting, booked restaurants and golf courses, provided transport from the station and to the hospital, informed guests of local amenities and attractions, and provided meals and shower facilities in the deceased’s own flat in the same building. The guests, however, were not called as witnesses and the executors had failed to provide full disclosure of all of the correspondence with customers in relation to their comments.

In 2014, as part of a local festival, a ‘jazz picnic’ had been held on the guest lawn and guests were invited to participate at no extra charge. In subsequent years guests had enjoyed a performance of a play, archery, and falconry displays on the grounds of the property. In August 2013, a wedding had taken place on the former tennis court; enquiries were made regarding future weddings but due to the deceased’s ill health these did not proceed. The business had since engaged a wedding co-ordinator to look at developing this part of the business.

Held (dismissing the appeal):

The issue of whether a business was ‘mainly’ the holding of investments was a question of fact and degree to be considered ‘in the round’ and by establishing ‘where the preponderance of business activities lies’ (Commissioners of Inland Revenue v George and Loochin [2004] and Brander v HMRC [2009] applied). The taxpayer bore the burden of proving on the balance of probabilities that the business was not mainly the holding of investments.

The fact that the correct analysis of the business under the income tax and capital gains tax legislation might be different from that under the inheritance tax legislation concerning business property relief was a matter for Parliament (Green v HMRC [2015] referred to).

HMRC manuals had no force of law, and the version of the manual referred to by the taxpayers had been superseded.

Henderson J’s proposition in HMRC v Pawson [2013] that ‘the owning and holding of land in order to obtain an income from it is generally to be characterised as an investment activity’ was merely his starting point in considering the submissions. It is not to be interpreted as a legal presumption to be rebutted by the taxpayer. The correct principles are as set out in Best v HMRC [2014].

In this case, the business was the letting of furnished holiday accommodation – it was not a business of a hybrid nature (Commissioners of Inland Revenue v George and Loochin [2004] and Brander v HMRC [2009] distinguished). It was possible for a furnished holiday letting business to be a composite business if, for example, the accommodation is built on a site with accompanying facilities, in which case the activity of letting accommodation is to be weighed against the other non-investment components. In this case, however, the predominant, if not the only activity, was to provide furnished accommodation to holidaymakers on a short-term basis.

The executors’ evidence pointed to three classes of activities:

  1. 1. investment activities (including the provision of accommodation, parking spaces, fixtures and fittings, communal laundry facilities, repairs and maintenance, and administrative tasks such as dealing with bookings and advertising);
  2. 2. incidental or ancillary activities (including provision of utilities, appliances and furniture, kitchen utensils and crockery, kitchen basics such as tea and coffee, and consumables such as washing-up liquid and toilet paper; cleaning the apartments; laundry of bed linen towels between lets, and welcoming guests); and
  3. 3. non-investment activities (including provision of books, DVDs, information leaflets, tennis or badminton racquets, frisbees, crab lines, buckets, and spades).

The ancillary activities were an integral part of the provision of accommodation. The non-investment activities were so insignificant in scale as to be negligible. No weight was to be accorded to the evidence from the former guests in the absence of full disclosure or cross-examination. Even taken at their highest, the tribunal would not have been able to make any finding of fact that the services were rendered to guests with any regularity. In any case, the deceased’s ability to offer these services would have been close to non-existent in the two years leading up to his death.

Accounting evidence as to the different categories of expenditure and the allocation of time spent across the different activities was not of any relevance where the factual matrix did not point to a composite business with different components. Neither was it relevant to make a comparison between what the apartments yielded and what they would have yielded if let on an assured tenancy basis (Green referred to).

While the business was run to a high standard, there was nothing exceptional to elevate it to the level of business found in Graham v HMRC [2018]. In the context of property management, additional services that can be classified as non-investment activities are unlikely to be material and will not be enough to prevent a remaining ‘main’ one of holding the property as an investment (George referred to). The threshold for additional services to qualify a normal property letting business for business property relief was very high (Pawson referred to).

JUDGMENT JUDGE HEIDI POON: Introduction [1] This appeal concerns Inheritance Tax (‘IHT’) in relation to the deemed transfer of value on the death of Sheriff Graham Loudon Cox (‘Sheriff Cox’) on 27 December 2014. [2] The appealable decision is the notice of determination issued by HMRC on 21 June 2018 under s221 of the Inheritance …
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Counsel Details

Sandra Turnbull, chartered accountant and executor, for the appellants.

Jeremy Schryber, litigator of HM Revenue and Customs’ Solicitor’s Office (South West Wing, Bush House, Strand, London WC2B 4RD) for the respondents.

Cases Referenced

  • Best v HMRC [2014] UKFTT 77 (TC); [2014] WTLR 409 FTT (TC)
  • Brander v HMRC [2009] UKFTT 101 (TC); [2009] WTLR 1117 FTT (TC)
  • Commissioners of Inland Revenue v George and Loochin [2003] EWCA Civ 1763; [2004] WTLR 75 CA
  • Graham v HMRC [2018] UKFTT 0306 (TC); [2018] WTLR 911 FTT (TC)
  • Green v HMRC [2015] UKFTT 334 (TC); [2015] WTLR 1337 FTT (TC)
  • HMRC v Brander [2010] UKUT 300 (TCC); [2010] WTLR 1545 UT (TCC)
  • HMRC v Pawson [2013] UKUT 50 (TCC); [2013] WTLR 469 UT (TCC)
  • Martin v Commissioners of Inland Revenue [1995] STC (SCD) 5
  • Pawson v HMRC [2012] UKFTT 51 (TC); [2012] WTLR 665 FTT (TC)
  • Ross v HMRC [2017] UKFTT 507 (TC); [2017] WTLR 1417 FTT (TC)
  • Vigne v HMRC [2017] UKFTT 632 (TC); [2017] WTLR 1193 ChD
  • Vigne v HMRC [2018] UKUT 357 (TCC)
  • Zetland Settlement v HMRC [2013] UKFTT 284 (TC); [2013] WTLR 1065 FTT (TC)

Legislation Referenced

  • Inheritance Tax Act 1984, s105
  • Inheritance Tax Act 1984, s112
  • Inheritance Tax Act 1984, s221
  • Inheritance Tax Act 1984, s224
  • Taxation of Chargeable Gains Act 1992, s241