George & Anor v Inland Revenue

For business property relief under section 105(3) of the Inheritance Tax Act 1984, whether a business consists wholly or mainly of holding investments is an evaluative question for the Commissioners, assessed by considering the business in the round. Exploiting land for profit is investment activity, and ordinary property management may form part of holding the investment. Additional services and facilities are characterised by their nature and purpose, not by whether the lease or site licence requires them or rent includes their cost. A caravan-site business may be hybrid. The statutory test requires no investment “bag” or choice between investment being incidental and being the very business. The Commissioner’s conclusion that investment was not the main component was open to him.

The executors of Elsie Fanny Stedman’s will appealed against inheritance tax assessed on her 85 per cent shareholding in Dunton Park Caravan Sites Ltd. The Company operated a residential mobile-home park, caravan storage, a country club and related activities.

The Special Commissioner held that the Company’s business did not consist mainly of making or holding investments, so business property relief was available. Laddie J reversed that decision. The issue before the Court of Appeal was whether the residential park’s services and facilities formed part of an investment business, and whether the Commissioner had applied the correct approach under section 105(3) of the Inheritance Tax Act 1984.

1. Appeal allowed. Lord Justice Carnwath, with whom Lady Justice Hale agreed, allowed the appeal and restored the Special Commissioner’s decision.
2. Section 105(3) of the Inheritance Tax Act 1984 requires the business to be assessed as a whole. The question is whether making or holding investments is the main component of the business. The relative importance of investment and non-investment activities is an evaluative question for the Commissioners as tribunal of fact.
3. The High Court may interfere only on a question of law. Under Edwards v Bairstow [1956] AC 14, that requires a specific legal misdirection, absence of evidence, or a conclusion based on a view of the facts which could not reasonably be entertained. The Court should resist dressing up a factual evaluation as a legal issue.
4. Exploitation of a proprietary interest in land for profit is investment activity. Ordinary property management, including maintaining the property as an investment, may form part of holding it. Additional services or facilities provided to occupants are different. Their character depends on the nature and purpose of the activity, not on whether the lease or site licence requires it or the cost is included in rent. The reasoning in Martin v IRC [1995] STC (SCD) 5 and Fry v Salisbury House Estate Ltd [1930] 1KB 304 did not justify treating all such services as investment activities.
5. A caravan park is a hybrid business. The investment consists of the site, while residents provide their own accommodation. Maintenance of communal areas may both preserve the investment and provide services to residents. Precise apportionment may be needed where figures make it material, but trading figures remain only an imperfect guide.
6. The High Court placed excessive reliance on formulations in Cook v Medway Housing Society [1997] STC 90 and Weston v IRC [2000] STC 1064. The statute does not require an investment “bag” containing every activity linked to the land, nor a determination that investment is the Company’s very business. On the Commissioner’s findings, investment was not the main component and his conclusion was legally open.

• Court of Appeal (Civil Division): In [2003] EWCA Civ 1763 , the appeal was allowed and the Special Commissioner’s decision restored.
• Chancery Division: Laddie J reversed the Special Commissioner’s decision.
• Special Commissioner: Dr John Avery Jones held that the Company’s business did not consist mainly of making or holding investments, so business property relief was available.