HM Revenue and Customs v Trustees of the Nelson Dance Family Settlement

For business property relief, the value transferred may be attributable both to transferred assets and to a business retained by the transferor. The legislation does not require mutually exclusive attribution between the land and the business. The relevant focus is the reduction in the transferor’s estate, applying the “loss to donor” principle. Where an asset used in a business is transferred, its removal may reduce the value of the transferor’s business and qualify for relief, even though the asset itself is not a business and the transferee does not continue using it for business purposes.

HMRC appealed from a decision of the Special Commissioner in favour of the trustees of the Nelson Dance Family Settlement. Nelson Dance had transferred agricultural land and cottages into discretionary trusts. The land had development value exceeding its agricultural value. Agricultural relief was available only on the agricultural value, and the trustees claimed business property relief under Inheritance Tax Act 1984, section 104, for the balance.

The parties agreed that Mr Dance had carried on a farming business as a sole trader, that the transferred land had been used in that business, and that he had not transferred the business itself. The central issue was whether the value transferred was attributable to the value of the farming business, the value of the land, or both.

1. Appeal dismissed. The Special Commissioner had correctly held that business property relief could be available on the agreed facts.
2. The statutory question under section 104 of the Inheritance Tax Act 1984 is whether the value transferred is attributable to the value of relevant business property. It does not require an exclusive choice between the value of the transferred land and the value of the business.
3. The general scheme of the Act applies the “loss to donor” principle. The relevant inquiry is the reduction in the value of the transferor’s estate, rather than what happens to the property after transfer. Sections 3(1), 5, 104, 105(1)(a) and 110 operate consistently with that approach.
4. Under section 110, the value of a business is its net value, calculated by reference to the assets used in the business and relevant liabilities. If an asset used in the transferor’s business is removed, the resulting reduction in the value of that business may represent value attributable to the business for section 104 purposes.
5. There is no requirement that transferred property remain a business, or be used for business purposes by the transferee. The object of business property relief is sufficiently served by requiring use of the relevant assets in the transferor’s business up to the time of transfer.
6. Section 112 supports a non-exclusive approach because it contemplates that value may be attributable both to relevant business property and to particular assets, while making specific provision for excluding excepted assets.
7. The provisions concerning liability for tax, payment by instalments and charges, including sections 199, 216, 227 and 237, do not displace that construction. They may operate by reference both to transferred land and to the business retained by the transferor.

The appeal against the Special Commissioner’s decision was dismissed.

• High Court (Chancery Division): HMRC’s appeal from the Special Commissioner was dismissed.
• Special Commissioner: judgment was given for the trustees on the preliminary issue; HMRC’s determination was quashed.