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HMRC internal manual

Inheritance Tax Manual

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HM Revenue & Customs
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Business relief: Investment businesses: Wholly or mainly

The rule excluding investment businesses (IHTM25261) from business relief applies if the business consists ‘wholly or mainly’ of the excluded categories, IHTA84/S105(3).

When you investigate this you should look at the main activities of the business, and to its assets and sources of income or gains, over a reasonable period preceding the transfer.

Particular problems can arise where there are several sides to the business, one or more of which appear to fall within the excluded categories. This came up for consideration by the Special Commissioners in the anonymised case of Farmer and another (executors of Farmer, deceased) v Inland Revenue Commissioners (SpC 216), where there was a single business consisting of farming and of letting surplus properties on the farm. In that case it was held that:

  • It did not follow from the definition of business in IHTA84/S103(3) that the level of net profit was the only or principal test. The business and its activities had to be looked at in the round.
  • In this case the letting of properties was subsidiary to the main farming activity – and, although they were more profitable, the overall context of the business, the capital employed, the time spent by employees and consultants and the levels of turnover supported the conclusion that the business consisted mainly of farming.
  • Application of this principle can turn on the precise facts of a particular case. In some situations, you will need to consider whether there is a single hybrid business, or one or more separate businesses.
  • Hybrid businesses were considered in the case of Commissioners for HMRC v A.M. Brander (as executor of the Will of the late 4thEarl of Balfour) [2010] UKUT 300 (TCC). The Tribunal applied the same principles as in *Farmer *in a situation where the activities may also have constituted more than one business.