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HMRC internal manual

Shares and Assets Valuation Manual

IHT Business Property Relief: Business carried on for gain - s.103(3)


Although the word ‘business’ does not appear in subparagraphs (b) and (bb) of s.105(1), it is considered implicit that a company must have a business to enable its shares to qualify as ‘relevant business property’. The Special Commissioners confirmed in Grimwood-Taylor and Another (executors of Mallender deceased) v IRC [2000] STC(SCD)39 that for shares in a company to qualify for Business Relief the company must carry on a business for gain.

Under s.103(3) “business”

  • includes a business carried on in the exercise of a profession or vocation
  • excludes a business carried on otherwise than for gain.

The term “business” involves a wider concept than trade. The courts have defined it, for example, in the following terms:

  • “it denotes the carrying on of a serious occupation” - Lord Diplock in TownInvestments v DOE [1977] 1 All ER at page 835.
  • “anything which occupies the time and attention and labour of a man for the purpose of profit” - Jessel MR in Smith v Anderson [1880] 15 Ch D page 258.
  • “a serious undertaking earnestly pursued” - Widgery J in Rael Brook v Minister of Housing and Local Government [1967] 1 All ER at page 266.
  • “any occupation or function actively pursued with reasonable or recognisable continuity” - Lord Cameron in Commissioners of Customs & Excise v Morrison’s Academy Boarding Houses Association [1978] STC at page 8.

In relation to rented property, the term was analysed in some detail by Lord Diplock in the Privy Council case of American Leaf Co v Director - General [1979] AC 676 at page 684.

The case was concerned with the definition of “business” and whether the mere receipt of rental income from property could be considered a business. The Privy Council’s decision distinguished between the business activity carried on by an individual and that carried on by a company and their lordships stated:

“….in the case of a company incorporated for the purpose of making profits for its shareholders any gainful use to which it puts any of its assets prima facie amounts to the carrying on of a business”.

In the VAT case Commissioners of Customs & Excise -v- Lord Fisher [1981] STC 238 at page 245 Gibson J identified six indicators, some or all of which should be satisfied to identify an activity or activities as a business. These indicators are equally applicable as a test for IHT purposes. He said a business will exist where the activity

  • is “a serious undertaking earnestly pursued” or “a serious occupation, not necessarily confined to commercial or profit-making undertakings”
  • is “an occupation or function actively pursued with reasonable or recognisable continuity”
  • has “a certain measure of substance as measured by the quarterly or annual value of . . . supplies made”
  • was “conducted in a regular manner and on sound and recognised business principles”
  • is “predominantly concerned with the making of … supplies to consumers for a consideration”

(The above five tests only were applied in the Burkinyoung case) (see this chapter at SVM111160).

  • and whether those supplies “are of a kind which, subject to differences in detail, are commonly made by those who seek to profit by them”.

Businesses not carried on for gain and unusual businesses

Such businesses are considered to include amongst others:

  • some local sports membership clubs
  • the management and provision of leisure activities for the benefit of the shareholders and their friends, for example fishing or shooting not run on a genuine commercial basis. Alternatively it may be argued that these are not business activities - see Customs and Excise Commissioners v Lord Fisher [1981] 2 All ER 147.
  • some stud farms. Cases should be referred to SAV (Livestock) for advice. Note, however, that land and buildings used for the purposes of any stud farm will constitute agricultural property for agricultural relief purposes in respect of controlling holdings - see chapter 112 of this manual SVM112000
  • residents’ associations.

Where a dispute arises as to whether a company does have a business or whether the business is carried on for gain advice should be sought from the Litigation and Technical Advice Team (LTAT).

Woodlands syndicates

You should refer to the LTAT any case where BR is claimed in respect of an interest in a woodlands syndicate or a forestry business run by a company.

  Additional Guidance: SVM150000