Commercial Property Fails IHT Test

Hot upon the heels of a tax case in which it was ruled that a residential lettings business could constitute a ‘business’ for Inheritance Tax (IHT) purposes comes a ruling by the First-tier Tribunal (FTT) that letting out office space was not a trade for the purposes of qualifying for IHT ‘business property relief’ (BPR).



BPR excludes the value of qualifying property from the ‘taxable estate’ of the deceased and applies (with limitations) when the property concerned is used for carrying on a business. BPR is not available where the business concerned is ‘mainly’ one of dealing in land or making or holding investments.



In the case in point, the argument involved BPR on the shares of a family company which owned a commercial building divided into units which it let to tenants for different periods of time – normally ranging between one and five years. The shares were held by a family trust.



The argument that the operation of the business constituted a trade rather than an investment included the fact that the trustees actively managed the property concerned and provided (or allowed on site) services not normally supplied by landlords operating properties as investments, including a café, a gallery, meeting rooms, bicycle parking, a gym, conference rooms, a mail room and Wi-Fi.



The FTT also heard that the ‘extra’ services generated only £30,000 of the total annual income, which was in excess of £2 million. It concluded that when the range of services provided was looked at closely, the conclusion was that they were primarily concerned with increasing the investment return from the building.



The claim that BPR was available therefore failed.