If you run a livery business, could you be ‘saddled’ with extra tax?
What is the issue?
HM Revenue and Customs (HMRC) are always looking for ways to collect greater amounts of tax. This will usually be at the expense of denying claims for valuable inheritance tax (IHT) reliefs such as Agricultural Property Relief (APR) and/or Business Property Relief (BPR). Following HMRC’s success in denying BPR on furnished holiday lets, the UK tax authorities have now focused their attention on DIY “Do it Yourself” livery businesses.
What does this mean for me?
If you carry on a livery business where you are not solely responsible for the care of the horses, there is a risk that HMRC may try and argue that you are carrying on an investment business rather than a trading business. Holding investments attract no particular tax reliefs whereas a trading business will usually qualify for 100% BPR resulting in the value of your business being exempt from IHT.
HMRC’s argument is that owning and holding land to generate an income from it is generally characterised as an investment activity and as such will not qualify for BPR.
How can I protect my entitlement to BPR?
In situations where income is being generated from land, the availability of BPR often turns on the quality and quantity of the services being offered on the occupied land.
In the case of a DIY livery business, it would be harder for HMRC to deny BPR if the land owner was offering the following services:
- the provision of a worming programme
- cleaning the field
- providing water for the horses
- being available to deal with problems relating to the horses
- checking the horses on a daily basis
- providing hay for the horses
- providing ad hoc advice to the horse owners
- offering transport facilities where necessary
Is there anything else that may help preserve my entitlement to BPR?
If your DIY livery services form part of a larger operation such as farming, then BPR may still be available where you are not offering any of the additional services mentioned above. This is because a business will qualify for 100% BPR providing it is trading and is not one which “wholly or mainly” holds investments. The term “wholly or mainly” generally means more than 50%. Therefore, providing that more than 50% of your business activities (taken in the round) are considered to be trading activities, you may still qualify for 100% BPR on the full value of your business.
A final word of warning!
This article has focused on IHT and the ability to preserve BPR. If, however, you decide to sell your business, your DIY livery yard will not qualify for entrepreneurs’ relief (ER). This is a capital gains tax (CGT) relief which results in a 10% tax rate applying on a disposal. Unlike IHT where BPR may be available on a diversified business, ER will only be available in limited circumstances.
Taxation and reliefs are always a complex area! If you would like to discuss any aspect in more detail, then please don’t hesitate to get in touch with our specialist team.