David Jetuah, Accountancy Age, Wednesday 25 August 2010 at 10:22:00

Taxman fails to convince judges that the late Earl of Balfour was notentitled to business property relief when he passed on his substantial holdingsto his relatives


The taxman has lost a court battle to have relief which spares businessowners from inheritance tax when they transfer holdings to relatives withheld,on a 2,000 acre estate which once belonged to World War 1 prime minister ArthurBalfour.

His son, the 2nd Earl of Balfour, made arrangements to pass on his estatebefore he died in 2003, but HM Revenue & Customs argued the Scottish estatewas not eligible for Business Property Relief.

However HM Revenue & Customs failed to convince the Upper Tier taxtribunal to reverse a decision granting the tax breaks, which can give 50% or100% relief.

Under Section 105 (3) of inheritance tax laws, a business or interest in abusiness does not qualify for the relief if the business consists wholly ormainly of operations which deal in securities, stocks or shares, land orbuildings or making or holding investments.

When Lord Balfour died on 27 June 2003, the estate included farms under thecontrol of his family, farms which had been let out since the 1950s, policyparks, woodlands and sporting rights, twenty six let houses and cottages andalso two sets of business premises.

HMRC challenged the Balfour estate on this point, but the Upper Tribunal saidthat the judge who heard the case at an earlier stage in the First-Tier tribunalhad made the right decision.

"We are satisfied that on the evidence before him, Judge Reid was entitled to

conclude that section 105(3) did not apply because Lord Balfour s business atWhittingehame Estate did not consist mainly of holding investments, Upper tierjudges said.

"Having decided the questions raised by HMRC against them, we thereforerefuse

the appeal."