Inheritance TaxAug 25 2017

HMRC court verdict branded warning on business cash

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HMRC court verdict branded warning on business cash
ByDamian Fantato

A recent court battle brought by HM Revenue & Customs is a warning to businesses not to keep unnecessary cash, the head of an infrastructure and private equity investment manager has said.

Hugi Clarke, director at Foresight Group, which has over £2bn of assets under management, said the recent ruling could have implications on whether a business qualifies for business property relief and therefore on how much inheritance tax it is liable for.

HMRC lost a case against the representatives of the estate of Maureen Vigne over whether the livery business she ran was an investment business or not.

The judge ruled any “objective observer” would agree the livery was a business which consisted of more than just leasing land.

Mr Clarke said any business could theoretically fall foul of this requirement and said it highlighted the need to think about the amount of cash a business holds.

He said: “At what point does the cash cease to be a trading asset of the business?

“While it is a trading asset of the business it would qualify for business property relief but once it becomes an investment it would not longer qualify.”

He said businesses seeking to benefit from business property relief should think about whether any cash set aside was for a specific trading purpose.

Mr Clarke gave the example of a marquee company he encountered which held quite a large amount of money aside but this was needed because the marquees had a relatively short lifespan.

But David Mott, manager partner at private equity investor Oxford Capital, said there were still complications about managing an IHT liability.

He said: “The verdict in this case seems fair and reasonable. As the judge pointed out, the relevant law is very clear – as long as a business is being operated, and as long as its trade is not investing, then it should qualify for relief.

"The decision will give some clarity and peace of mind to the owners of businesses which need to own land in order to trade.

"But it remains the case that qualification for Business Relief is only assessed after the business owner dies, which can make it difficult for families to manage their estates with full confidence.”

In the case involving the livery, Judge Geraint Jones ruled that it would be a “wholly artificial analysis” to claim the business, which consisted of 30 acres of land, consisted of an investment.

Mr Clarke said he was pleased the court had upheld the rules on this issue but he acknowledged there would always be some nuance involved.