Improving And Repairing Business Property For IHT Advantages
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First published 21 July 2015
outlines how improving and repairing the business property can deliver
average businessman it makes very strong commercial and tax sense to
improve business property prior to death.
principle is that if a businessman will die owning his trade and his
property and therefore qualify for Business Property Relief (BPR) for
inheritance tax (IHT). The maximum spent on the property should achieve
tax or corporation tax relief on the repair element and future IHT
tribunal cases on repairs of Pratt v HMRC
(TC1269), Hopegear v HMRC (TC
02734) and Cairnsmill Caravan Park v HMRC
(TC 02580) have made repairing parts of the business very
the elderly businessman in terms of income tax relief and overall tax
efficiency. The taxpayer can achieve an income tax deduction on the
incurred and any monies previously subject to IHT in their estate, are
into a business qualifying for BPR.
businessmen own assets outside the business that exceed the nil-rate
IHT or, for example, cash on the business balance sheet, they could
repair and improve the business for IHT efficiency while taking full
of these recent repair income tax cases. The window for the annual
allowance (AIA) claim will reduce on 31 December 2015 from the current
allowance of £500,000 to a new permanent maximum of £200,000, per the
businessmen will exceed the nil-rate band for IHT purposes which
stands at £325,000, with outside investments, excepted assets etc. Many
businessmen are building up cash reserves. Issues such as the benefit
reserves and planning for the cost of care in one’s twilight years also
be taken into consideration.
matters are complex, so tend to be the Wills of business families.
leave the business to family members who stay in the business
leave the outside investments to other family members. In some cases,
members act dishonestly and use tax efficiency as a smokescreen for
manipulation. However, there is no doubt that repair and improvement
to incorporate capital allowances is very beneficial at the moment, so
case must be looked at on its own merits to ensure that the best result
spent to improve the business property will fall into one of the
categories of expenditure:
(see Pratt, Cairnsmill and Hopegear)
allowances (see the 2014 and 2015 Budget changes, reducing the AIA to
effect from 1 January 2016);
(Capital, therefore not deductible for income tax purposes.
definition of the above categories is something of a grey area, so it
important to plan the nature of expenditure in advance. If any business
is approached on the basis that all expenditure has to fall into the
of repair, capital allowances or improvement, then the above is the
only way to
consider how to categorise expenditure. In reality there would most
expenditure arising in each of these categories.
on improvements can also be very tax efficient because it could well be
the businessman has need to ‘roll over’ a capital gain for Capital
(CGT) purposes– for example, they may have sold part of the business
development resulting in a capital gain that can be rolled over. So it
worth reviewing development opportunities and then tax efficiently
and improving the business property.
Plans for Cash
argue that the question of the cash does not matter, as provided there
plan for it to be spent on a specific business project, it can qualify
relief as part of the business, but there will still be a fight to
HMRC that this is the case.
Thus, any tax
planning around repairs, improvements to buildings etc, should clearly
that the cash on the balance sheet is to be used on a future project.
the businessman die before the works are completed or undertaken, there
chance of achieving IHT relief through BPR on the cash concerned. Where
is excessive cash, if the surplus monies can all be used for repairs,
expenditure will qualify for income tax relief, as the money spent will
tax deductible expense, and the expenditure will also effectively give
reliefs, provided that the
assets invested into qualify
for BPR. Therefore, if there are projects that require money to be
it is as well to spend the money.
increased ability to claim capital allowances on plant and machinery
integral to the buildings of the business, and so qualifying as
features, there are going to be more problems and complications
attached to the
probate valuation of businesses and increased need for collaboration
accountants and probate valuers. Historically, the machinery valuation
probate simply related to machinery, but now the valuation includes
integrated into buildings and this gives rise to complex considerations.
very beneficial tax planning opportunities that exist for elderly
care must be taken to consider Will disputes and undue influence on
family member stays in the business and others do not stay in the
problems arise where the family members involved in the business
parents to put money into the business to repair and improve property.
correct structure this could be very tax efficient but it could also
those family members who are involved in the business have the
advantage of the
receipt of this money by way of repairs to property held within the
operation. It could be argued that they are persuading family members
investments across to “their” side of the trading activities, to the
of those not involved in the business.
case of Hart and Samways v Burbidge 
EWHC 1628(Ch) provides a good illustration of how presumed undue
impact on many farming Wills in the current farming situation. The
made more acute by how much farm values have increased in comparison
has to be asked, when the farmer is being encouraged to spend more and
the farm by the sibling who inherits the farm, is legal advice being
The case of Burbidge shows it is
necessary for the court to be satisfied that the advice and explanation
solicitor was effective to free the donor from the impairment of
his free will. The sibling who has nothing or a considerably reduced
to inherit needs protection.
The Hart and Samways v Burbidge case is a
good illustration of the factors that will lead the court to determine
undue influence has taken place, even where there has been no
on the part of the person considered to have exerted the influence.
case involved two brothers claiming their sister Susan had exerted
influence over their mother, causing them to lose out on their
court held it was the daughter’s duty to prove there was no undue
she failed to do so.
there was no evidence of actual undue influence, there was a
trust and confidence between mother and daughter which gave rise to
absolved Susan of any deliberate wrongdoing, but emphasised that undue
influence can still exist in those circumstances, and relief can still
granted to undo the transactions procured by it.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
01962 735544. Email;
firstname.lastname@example.org, Website; www.butler-co.co.uk
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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