The result of a recent First Tier Tribunal case on a failed claim for 100% Business Property Relief (BPR) on an interest in a Limited Liability Partnership (LLP) which ran a wedding business will be of interest to members and rural businesses alike.
Facts of the case
Mrs Butler died in 2015, having been a member of Tufton Warren Farm LLP, which ran a wedding events business.
Over a few years, a building known as the “Clock Barn” was renovated to become a full-service wedding venue, which included landscaping the formal garden and outdoor space. A building was also converted into a honeymoon suite and planning permission to convert the farmhouse into a nine-bedroom hotel for wedding guests was obtained.
By 2010, the Clock Barn was hosting 50 weddings a year and generating turnover of over £100,000. This grew to about 95 weddings per year by 2015, with a turnover in excess of £350,000.
Up until 2012, Mrs Butler showed couples around the venue and answered their questions, took bookings and was present on the wedding day. Clients would contract directly with caterers suggested by Mrs Butler. Those caterers would use the on-site commercial kitchen and would supply food, wine, staff and other items, billing the clients directly.
In June 2013, the LLP appointed an exclusive marketing agent to manage the events and a sole caterer for all weddings, whilst Mrs Butler took a step back from the day-to-day running of the business. The caterer dealt with “on the day” event management responsibilities previously carried out by Mrs Butler.
The main services provided by the LLP from that point were the hiring of the venue, dance floor, furniture and facilities and the supply and cleaning of toilets.
The Tribunal’s decision
It was found that the LLP was a business of mainly holding an investment and the Tribunal agreed with HMRC that no BPR was accordingly due on Mrs Butler’s business interest. The key elements of the decision were:
- Most of the services provided by the LLP were a customary part of an investment property rental business, and
- While there were elements of services provided by the LLP, it did not provide any amenities or services that went beyond those that a business that held the property predominantly for investment purposes would provide.
How does the case have wider relevance for mainstream agriculture?
Considering the general “contracting” arrangements at play for Tufton Warren Farm LLP raises some interesting questions about how HMRC could be interested in taking a look at other arrangements put into place by rural businesses to carry on a business.
There has already been a string of cases in relation to caravan parks and horse livery businesses. Another example could be share farming, which, if appropriately structured, should constitute a trading activity for the landowner and farmer, where both parties are sharing in the risks and rewards of the business. However, it is acknowledged that there are different degrees of involvement in some share farming agreements and the degree of contracting carried out by a third party may be of increasing interest to HMRC.
Similarly, contract farming or whole farm contracting agreements may also be an area of focus for HMRC. These are put into place in cases where landowners have perhaps made the decision to sell machinery and reduce their exposure to variable costs by contracting directly with a third party who then takes responsibility for delivering the agricultural crop. These agreements are predicated on the landowner and contractor meeting regularly to discuss the management of the farming and, although the contractor has full control of day-to-day operations, ensures that the landowner also fully participates in the farming enterprise. At the end of the harvest year, a set of accounts is produced and each party takes a "first charge" after which any divisible surplus is split.
Such an arrangement is generally effective for both income tax and IHT purposes on the basis that the landowner is still involved in the farming business, is participating in the risks and rewards of the crop in any given year and is also the occupier for DEFRA purposes.
If a landowner becomes less involved in the whole farm contracting agreement, or perhaps takes such a high first charge that it could be reviewed as a disguised rent, it is possible to see how such an arrangement could be viewed through the same lens as the Butler Case.
Key takeaways
This case puts a real spotlight on wedding businesses which might currently be relying on BPR.
Whether BPR applies will depend on the specific facts of each case. HMRC may now use the Butler case to challenge a future claim for BPR on a wedding business, and/or look to expand the scope of their interest in BPR-qualifying activities by lifting the lid on other arrangements.
*The views expressed are the author's and not ICAEW's