Judge divorces wedding venue from Business Property Relief (BPR)

Apr 16, 2024

Claiming BPR from inheritance tax is a valuable tool in enabling family businesses to continue to operate down the generations.  

But it can constitute murky waters to navigate, particularly in relation to farm diversification projects.  

The deciding factor on whether an activity qualifies is if it simply constitutes an investment or a trading business. Investments are not eligible for BPR whereas trading businesses can be, although this isn’t always guaranteed.  

Holiday cottage 

An often-quoted example of this is the holiday cottage. If a farm converts a barn into a holiday cottage, or has a disused workers cottage on the farm, they may opt to turn it into holiday accommodation for an extra revenue stream.  

This would normally constitute an investment as it takes little active work to ensure a holiday cottage is available for guests yet can generate significant quantities of income. Under these conditions, it wouldn’t qualify for BPR. 

However, in a case where the owner is particularly active in servicing the accommodation, keeping it clean, keeping the garden looking pristine, providing extra services to the guests such as washing laundry, cooking meals, etc., this may be regarded as a trading business and as such, attract BPR. Each case is judged on its individual merits.  

Wedding blues 

A recent case regarding a wedding venue, however, was rejected by a tax tribunal for BPR because the judge ruled the business mainly involved the use of the property rather than the provision of services.  

The case relates to the late Helen Butler and the business in question was a share in a limited liability partnership (LLP) called Tufton Warren Farm LLP. The estate had a potential exposure to IHT of £1,671,235.  

Whilst the LLP carried on various farming and commercial enterprises, the most significant activity of Tufton Warren Farm LLP was a wedding venue business operating from a historic barn on the farm, called Clock Barn.  

Tufton Warren put in a claim for BPR for the wedding venue but despite significant investment in renovations, a commercial kitchen, preparation room and toilets, and staging around 95 weddings per year, this was rejected by a first-tier tax tribunal. HMRC took the view that the wedding venue business constituted an investment and as such, didn’t not qualify for BPR 

Outside caterers  

This decision hinged on the fact the wedding business contracted out catering to Galloping Gourmet, an external business, in the two years leading up to Mrs Butlers death.  

Customers were required to pay the caterers directly, and Galloping Gourmet took on much of the liaison with suppliers and other stakeholders in the weddings. In the eyes of HMRC, this meant the Tufton Warren Farm LLP’s main contribution to the business activity was to supply a venue for the weddings – a service it determined as an investment.  

When Helen Butler’s untimely death triggered a chargeable transfer of value, the investment exclusion meant IHT became due in full and despite Mrs Bulter’s estate challenging the ruling, the decision stood.  

Summing up, the judge at the tribunal said that the Clock Barn business has always fallen on the village or community hall side of the spectrum, and away from the fully serviced conference venue. 

He said:

“Before the appointment of Galloping Gourmet as caterer, the level of business activities undertaken by the LLP may have been of more significance, but I find that it still fell to be treated as a business of holding investments.” 

Reflecting on the results, Martin Anson, director at Whitley Stimpson and agricultural tax expert, said it was vital farm businesses diversifying into new areas understood the requirements of BPR, or they could be in for a nasty shock in the event of a death.  

He said:

“The Butler case goes to show that where BPR does and doesn’t apply is not fixed. There is no easily defined line that differentiates the two. 

“Anyone considering diversifying their farm business must take professional advice on this and other tax issues because the consequences of a wrong decision could be extremely costly.” 

For more advice on tax planning for a farm business or a new diversification project, Martin Anson on (01295) 270200 or email martina@whitleystimpson.co.uk. 

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