Quarterly News

Nifty Footwork Proves a Winning Dance

Now that the recent series of Strictly Come Dancing has ended, memories still remain of those celebrities who managed to get all the steps wrong. Nifty footwork is the real key to success as demonstrated by an advocate in a recent case which has left HMRC in a spin.

The facts can be summarised as follows - Mr Dance owned three farms which he ran as a sole trader. He transferred one whole farm and part of another to trustees as an inheritance tax (IHT) planning exercise and claimed Business Property Relief (BPR) of 100% on the transfer. HMRC argued that the legislation states that to qualify for BPR a whole business must be transferred and not simply certain assets of the business and as Mr Dance continued to run the farm business there could be no relief.

This is where counsel for the trustees worked some show stopping magic. He reminded the court that a transfer for IHT purposes is measured by the loss to the donor's estate so it is necessary to value the whole estate before and after the transfer. Mr Dance's estate before the transfer included the farm and in valuing that, account had to be taken of the value of the farmland. Similarly after the transfer, his estate still included the value of the business but now with less land, so the value of the estate had been reduced. The only reason for the loss in value was the reduction in the value of the business and so BPR must be due.

Big finish – take a bow. No Goodmanesque 'seven!' from the judge but a resounding 'ten'. Fabulous!

The decision is of real significance to anyone running an unincorporated business who wants to transfer some of the assets, most notably land, to reduce their IHT burden. Care needs to be taken because there are some dangers if the donor dies within seven years as this may trigger a possible clawback of BPR. Please contact us for further advice if planning in this area is of interest to you.

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