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Matthew Hutton MA, CTA (fellow), AIIT, TEP author of Monthly Tax Review, highlights an issue regarding the interaction of business and agricultural property relief and the reservation of benefit rules. 

Matthew Hutton

Context

As is well known, if an individual disposes of any property by way of gift and, within seven years before his or her death, he or she enjoys any benefit from that property by contract or otherwise (otherwise than for full consideration), that property is treated as property to which he or she is beneficially entitled at the date of death (FA 1986, s 102). Because of that, it is included in the property subject to a deemed transfer of value at death (IHTA 1984, ss 4 and 5(1)).

Agricultural property – the occupation test

If it is agricultural land, relief under IHTA 1984, s 116 will be available if the donor satisfies s 117(a), which requires that he has occupied the land for the purposes of agriculture throughout the two years immediately preceding his death.

Relevant business property – the ownership test

If it is business property, however, it cannot be ‘relevant business property’ because this requires ownership by the deceased throughout the two years immediately preceding his or her death. So no relief can be available under IHTA 1984, s 104.

Conclusion

Thus, business property given away which is now subject to a reservation of benefit will be taxable, although it could have been exempt from IHT had the donor retained it.

(TAXline June 2007 – Issue 6, p 8, contribution by Ray Magill)

Comment

However, in a situation such as the above, para 8 of FA 1986 Sch 20 comes to one’s aid, not just with business property but also (if necessary) with agricultural property.  And, in relation to the latter, the two year occupation test will not help where there has been a reservation of benefit for reasons other than occupation, eg deriving some income (rental or otherwise).

Para 8 deals with the situation where there has been a lifetime gift of either relevant business property or agricultural property (or indeed shares in a farming company) and the property is subject to a reservation at death.  The assumption is made that any shares were owned by the donor and had been owned by him since the gift.  And the issue of whether APR or BPR is available on the donor’s disposal of any property by way of gift on death is determined as if the transfer were a transfer of value by the donee (and so that ownership by the donor is treated as ownership by the donee and occupation by the donor before and after the disposal is treated as occupation by the donee).

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Matthew Hutton Conferences 2007

Matthew’s six round the country Estate Planning Conferences in September and October 2007 will be held on the following dates and at the following venues:

East - Thursday 6 September: Cambridge Belfry Hotel, Cambourne CB3 6BW           

North - Wednesday 19 September: Tankersley Manor, South Yorkshire S75 3DQ          

Midlands - Tuesday 25 September: Woodland Grange, Leamington Spa CV32 6RN

West - Thursday 4 October: Hilton Bristol Hotel BS32 4JF                   

South - Wednesday 17 October: Norton Manor Hotel, Sutton Scotney, nr Winchester SO21 3NB

London - Wednesday 31 October: New Connaught Rooms, London WC2               

The subject matter has yet to be finalised, although brochures will be available in June.  The cost is £295 plus VAT per delegate or for those who have attended a previous Matthew Hutton Estate Planning Conference £270 plus VAT per delegate.

Enquiries for all these Conferences should be made to Matthew on mhutton@paston.co.uk.