The Trustees of David Zetland Settlement v HMRCC [2013] UKFTT 284





The appellant trustees appealed from a notice of determination dated 16 February 2010 whereby HMRC refused inheritance tax business property relief on the basis that immediately before the ten-year anniversary on 22 September 2007, none of the property comprised in the settlement was relevant business property for the purposes of s104 of the Inheritance Tax Act 1984 (IHTA). HMRC contended that the business was excluded under s105(3) IHTA in that it consisted ‘mainly of… making or holding investments’.

The principal asset of the settlement was Zetland House, which was a commercial building divided into units let to tenants for between one and five years. Units at Zetland House were intended to offer flexible office space for computer, media and high technology businesses. A number of services and amenities were provided to the tenants of Zetland House, including a café, gallery, gym, wi-fi, security, bicycle spaces, waste recycling, hire of conference rooms, photo shoots and communal social events for tenants.

HMRC considered that the holding of Zetland House was an activity of generating income from rentals and property rights and that the services provided were ancillary to that activity. It was submitted that the relevant test was not the degree of activity, but the nature of the activities carried out.

It was submitted by the appellants that sufficient services were provided to the tenants of Zetland House to conclude that it ought not to be classified as an investment business. In the vast majority of business and residential lettings, the landlord would provide nothing more than a lease to the property and do nothing other than collect rent. By contrast, the appellants were active managers rather than passive investors and their business should be treated in a similar way as a hotel would be treated. It was unfair for HMRC to ignore the café, gym and hair salon because these were operated by others; it was not unusual for hotels to bring in outside operators to run restaurants and spas and still qualify for relief.

Held (dismissing the appeal):

(1) The degree of services required to take a business out of the ‘mainly’ holding of investments category is not stated in law. The nature and purpose of the activities must be carefully examined. A business that requires a high level of provision of services such as a hotel or a residential home, where the tenants are paying separately from the use of the land, can be considered a business that is not the holding of investments (paras [62]-[63]).

(2) There are important differences between the letting of offices and the business of running a hotel. A guest in a hotel does not sign a lease with attendant obligations nor has exclusive occupation for a fixed period (para [81]).

(3) Matters should be looked at in the round. Both quantitative and qualitative factors are relevant. The issue is the relative importance of the non investment activities to the business as a whole (paras [104]-[105]).

(4) Non investment activities at Zetland House are nonetheless concerned primarily with increasing the return from the building, by means of providing flexible management, shorter leases and tenants who could provide amenities such as the café, gym, coffee shop and hair dressing salon. Although some services were provided over and above that required to be provided by a landlord, the reality is that most of these activities (such as the cycle rack, gallery, coffee shop, hairdressing salon and gym) directly generated rental income for the appellants (paras [109]-[110]).

JUDGMENT Dr K KHAN Introduction [1] The appellants (the trustees) are appealing against a notice of determination issued by the respondents (HMRC) on 16 February 2010 (and a review of 28 April 2010) whereby HMRC refused IHT business property relief (BPR) on the grounds that the appellants were carrying on a business excluded under s105(3) …
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Counsel Details


Hui Ling McCarthy (Gray’s Inn Tax Chambers, 3rd floor, Gray’s Inn Chambers, Gray’s Inn, London WC1R 5JA, tel 020 7242 2642, e-mail, counsel for the appellant.

Christiaan Zwart (39 Essex Street, London WC2R 3AT, tel 020 7832 1111, e-mail, instructed by the general counsel and solicitor to HM Revenue and Customs, for the respondents.

Legislation Referenced

  • Inheritance Tax Act 1984, ss103-105