Understanding where the line is to be drawn between investment and non-investment assets is critical in securing inheritance tax Business Property Relief (BPR) on property businesses.

In recent years there has been a raft of cases in which taxpayers have argued that business properties which demand a significant level of time and effort should be regarded as trading. Many such cases have been lost by the taxpayer and there seems to have been a gradual raising of the bar in terms of the hurdles that have to be overcome in order to qualify for BPR.

HMRC’s view is generally that such businesses are simply the exploitation of the underlying land and property which does not amount to a trade. As a result, there is no doubt that anyone wishing to claim BPR will need to demonstrate the provision of very substantial services in association with the property and that what is being provided is not simply the right to occupy a holiday let for the letting period for example.

The Tribunal in many of these cases has started from the presumption that a land-based business should be viewed as an investment business with the onus falling on the taxpayer to prove otherwise.

But while many such cases failed, the recent Upper Tribunal case of Vigne’s Executors v HMRC does provide another view, potentially lowering the bar once more. This case concerned a livery business which provided a number of services over and above those that would often be provided whilst not quite amounting to a full livery. HMRC lost the case at First Tier Tribunal in 2017 and their appeal has now been rejected by the Upper Tribunal.

The importance of this is that in dealing with the case the Upper Tribunal made it clear that it is not necessary to apply the presumption previously applied that a land-based business should automatically be viewed as an investment business. This provides a more favourable starting point for the taxpayer.

While this may be good news for some taxpayers it does remain clear that for certain types of business, such as self-catering holiday lets with few or no added services, the possibility of obtaining BPR remains unlikely.

Also see: How to use Business Property Relief to minimise your inheritance tax bill – Richard Hallett, investment director at Hargreave Hale, on how Business Property Relief can be used to minimise your inheritance tax bill.