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HMRC internal manual

Inheritance Tax Manual

Business relief: Investment businesses: Furnished lettings

Regard also needs to be had in these cases to the level of services provided by the landlord and which exceed the responsibilities as landlord. A landlords obligations were considered in the Zetland case above (IHTM25275) and were also considered in an earlier furnished lettings case.

Burkinyoung (Executor of Burkinyoung deceased) -v- CIR (1995) SC3

Mrs Burkinyoung owned a house in West London which, at her death in 1989, was split into four self-contained flats let furnished on assured shorthold tenancies. She employed managing agents who carried out the following activities:

  • organising internal and external repairs and maintaining and refurbishing the property
  • maintaining inventories of the furnishings
  • arranging the cleaning of the common areas and the maintenance of the garden
  • legal and general administration of the lettings and rent collection
  • advertising vacancies and negotiating and arranging tenancy agreements
  • responsibility for the insurance of the property, the payment of the rates and water rates and the provision of electricity to the common parts of the building, and
  • dealing with the tenants’ complaints.

We conceded that there was a business but, as the only income was the rental obtained from the four flats, argued that that business was one of ‘wholly holding investments’. The executor appealed against the NOD that was issued on this basis. The Special Commissioners upheld the Revenue’s view, on the same reasoning as the Moore case.  They again stated that the activities of complying with the landlord’s obligations under the leases were generally designed to protect and preserve the landlord’s reversionary interest

“Those activities would be activities of ‘holding investments’ in determining whether the business was one that consisted wholly or mainly of the making or holding of investments; that would be the case however onerous the landlord’s obligations might be and however much the landlord had been involved in the control or management of the property letting business.”

He found that the whole gain derived by Mrs Burkinyoung came to her as rent. She provided no additional services and so earned nothing from any other sources or activities associated with the house. The appeal was dismissed.

It will be clear from both this and the Moore (IHTM25275) case that IHTA84/S105(3) can be applied without too much regard to the extent of personal involvement by the deceased/transferor. However, where services, outside those required of a landlord, are supplied for a separate consideration, they need to be taken into account when deciding whether the ‘mainly’ qualification in IHTA84/S105(3) is met. In most cases the level of services provided will not be sufficient to weigh the balance away from ‘investment’.