England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		22/01/2009

Mr Justice Sales :

1. This is an appeal by HM Revenue and Customs ("HMRC") from a decision of the Special Commissioner, Dr Avery Jones CBE, giving judgment for the Trustees of the Nelson Dance Family Settlement ("the Trustees") on a preliminary issue in relation to the liability of the Trustees to pay tax under the Inheritance Tax Act 1984 ("the IHTA") in respect of a transfer by Nelson Dance ("Mr Dance") of agricultural land into the hands of the Trustees in late 2002 or early 2003. The preliminary issue concerns the question whether the transfer qualifies for business property relief ("BPR") under s. 104 of the IHTA. This question is significant because although it is agreed that the transfer qualifies for agricultural relief under the IHTA, that relief is limited to the agricultural value of the land. In the present case, the land has development value, so the Trustees claim BPR under s. 104 of the IHTA in relation to the value of the land over and above its agricultural value.
2. The form of the preliminary issue was agreed at the hearing before me in simpler terms than those in which it had been stated before the Special Commissioner, as follows: whether, on the facts agreed or assumed below, BPR was available on the value transferred by the Transfer of Value defined below (i.e. the transfer of value associated with the creation of the Nelson Dance Family Settlement by the transfer of the relevant property into the hands of the Trustees). The facts have been agreed between the parties solely for the purposes of the determination of the preliminary issue, and the parties reserve their positions on points which might become relevant should the preliminary issue be determined against the Trustees on this appeal.
3. The agreed facts are these:

"(1) Nelson Dance ("Mr Dance") made a transfer of value, as defined in s3 IHTA ("the Transfer of Value") on a date as yet unconfirmed in late 2002 or early 2003 ("the Transfer Date").

(2) Immediately prior to the making of the Transfer of Value, Mr Dance owned and carried on the business of farming as a sole trader ("the Business").

(3)(i) The Business did not consist wholly or mainly of one or more of the following, that is to say dealing in securities, stocks or shares, land or buildings or making or holding investments;

(ii) Mr Dance owned the Business throughout the two years immediately preceding the Transfer of Value.

(iii) The Business was not subject to a binding contract for its sale at the time of the Transfer of Value.

(4) The assets used in the Business included land and buildings ("the Land and Buildings"), namely some 1,735 acres of agricultural land near Andover, Hampshire, consisting of Upper and Middle Wyke, Finkley Manor Farm and East Anton Farm, Icknield Way plus two cottages Nos 1 and 2 East Anton Farm Cottages.

(5) Prior to the Transfer of Value Mr Dance executed a settlement (the Nelson Dance Family Settlement) upon discretionary trusts such that the property which came to be comprised in it would be "relevant property" as defined in s58 IHTA 1984.

(6) On the Transfer Date, Mr Dance executed two declarations of trust ("the Declarations of Trust"), by virtue of which East Anton Farm comprising approximately 141 acres and the two cottages Nos 1 and 2 East Anton Farm Cottages, and part of Finkley Manor Farm comprising 218 acres, became held upon the trusts of the Settlement.

(7) The Declarations of Trust gave rise to the Transfer of Value.

(8) The land referred to at Paragraph (6) above qualified as agricultural property for the purposes of s.116 IHTA, was occupied by Mr Dance for the purposes of agriculture throughout the period of two years ending with the date of the Transfer of Value, and was not subject to a binding contract for sale at the time of the Transfer of Value.

(9) Upon the Transfer of Value Mr Dance did not transfer a business or an interest in a business to the Trustees.

(10) Mr Dance died on 1st April 2004."

4. On those facts, HMRC issued a Notice of Determination dated 23 April 2007 to the effect that none of the value transferred was attributable to the value of relevant business property, so that BPR under s. 104 was not applicable. The Trustees appealed to the Special Commissioner against that determination. A preliminary issue was directed to be heard. On that issue, the Special Commissioner ruled in favour of the Trustees, with the consequence that the appeal was allowed and the determination was quashed.

The Statutory Scheme

5. Part I of the IHTA contains the statutory scheme regarding capital transfer tax ("the tax"). Section 1 provides that tax is charged on the "value transferred" by a "chargeable transfer". Section 2(1) defines a chargeable transfer as being "any transfer of value which is made by an individual but is not … an exempt transfer". Part II of the IHTA governs exempt transfers of value. The transfer of value which occurred when Mr Dance created the Settlement was not an exempt transfer.
6. Section 3(1) defines a transfer of value as "…a disposition made by a person (the transferor) as a result of which the value of his estate immediately after the disposition is less than it would be but for the disposition" and provides that "the amount by which it [i.e. the transferor's estate] is less is the value transferred by the transfer." For the purposes of establishing that a transfer of value has occurred and quantifying the amount of the transfer, the relevant focus is upon the reduction in the value of assets in the transferor's hands, not upon any increase in the value of assets held in the hands of the transferee. The reduction in the value of assets in the hands of the transferor as a result of a disposition may in some cases be different from (either greater or less than) the increase in the value of assets in the hands of the transferee. One example is where the transferor holds 51% of the shares in a company, so enjoying control and the enhanced value associated with a shareholding which confers control, and then transfers 2% of the shares in the company to a transferee. In such a case the reduction in the value of the transferor's estate arising from the disposition (by which a controlling majority shareholding is converted into a minority shareholding) will typically be greater than the increase in the value of the assets of the transferee (who receives only a small minority shareholding). In such circumstances, the value transferred by the transfer is calculated by reference to the former rather than the latter. For convenient shorthand, this may be referred to as the 'loss to donor' principle. Section 3(3) reflects this principle by making provision for certain special cases, which are not in issue here, where the transferor acts or omits to act in ways which reduce the value of his estate.
7. So far as is relevant, s. 5 provides that "a person's estate is the aggregate of all the property to which he is beneficially entitled …" (sub-section (1)) and that, except as otherwise set out in the IHTA, "[i]n determining the value of a person's estate at any time his liabilities at that time shall be taken into account" (sub-section (3)).
8. Mr Massey QC for the Trustees points out that various of the exemption provisions in Part II of the IHTA – ss. 18 (transfers between spouses), 23 (gifts to charities), 24 (gifts to political parties), 25 (gifts for national purposes) and 30 (transfers where exemption depends upon the giving of an undertaking by the transferee as to what will be done with the transferred assets) - operate by express reference to what happens to the assets of the transferee in relation to a disposition. The fact that the draftsman of the IHTA has made the intention to focus on what happens to assets in the hands of the transferee express in these particular provisions serves to reinforce the impression that the loss to donor principle is the general governing principle where these provisions are not applicable. It is thus clear that it is not relevant for the availability of BPR under s. 104 in relation to a transfer of value with respect to a business that the business or part of it should continue as a business in the hands of the transferee.
9. Part V of the IHTA sets out reliefs which are available in respect of transfers of value. Section 104 provides for BPR in these terms:

"(1) Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced—

(a) in the case of property falling within section 105(1)(a) (b) or (bb) below, by 100 per cent;

(b) in the case of other relevant business property, by 50 per cent;

but subject to the following provisions of this Chapter.

(2) For the purposes of this section, the value transferred by a transfer of value shall be calculated as a value on which no tax is chargeable."

10. Section 105(1) provides:

"105 Relevant business property

(1) Subject to the following provisions of this section and to sections 106, 108, 112(3) and 113 below, in this Chapter "relevant business property" means, in relation to any transfer of value, -

(a) property consisting of a business or interest in a business;

(b) securities of a company which are unquoted and which (either by themselves or together with other such securities owned by the transferor and any unquoted shares so owned) gave the transferor control of the company immediately before the transfer;

(bb) any unquoted shares in a company

[(c) …;]

(cc) shares in or securities of a company which are quoted and which (either by themselves or together with other such shares or securities owned by the transferor) gave the transferor control of the company immediately before the transfer;

(d) any land or building, machinery or plant which, immediately before the transfer, was used wholly or mainly for the purposes of a business carried on by a company of which the transferor then had control or by a partnership of which he then was a partner; and

(e) any land or building, machinery or plant which, immediately before the transfer, was used wholly or mainly for the purposes of a business carried on by the transferor and was settled property in which he was then beneficially entitled to an interest in possession."

11. In the case where a person carries on a business, the language used in s. 105(1)(a) indicates that it is the business (or interest in the business) itself which is treated as the relevant business property, rather than property (such as trading stock) owned by him and used within the business. This interpretation is reinforced by s. 106, which provides that property is not relevant business property qualifying for BPR "unless it was owned by the transferor throughout the two years immediately preceding the transfer". This serves to emphasise that, in relation to property consisting of a business or interest in a business as set out in s. 105(1)(a), the focus is on the distinct concept of the business as a going concern, rather than upon the assets which are used in that business (such as stock which is bought in then sold on in the course of a trading business).
12. Section 110 provides:

"110 Value of business

For the purposes of this Chapter –

(a) the value of a business or of an interest in a business shall be taken to be its net value;

(b) the net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business;

(c) in ascertaining the net value of an interest in a business, no regard shall be had to assets or liabilities other than those by reference to which the net value of the entire business would fall to be ascertained."

13. Sub-paragraph (b), in particular, indicates that in valuing a business as a form of business property for the purposes of the Act, it is necessary to have regard to the assets used in the business. It is common ground that the land transferred in the present case was an asset used in Mr Dance's farming business up to the point when it was transferred. It was therefore part of the value of that business for the purposes of the IHTA.
14. Section 112 provides, so far as relevant, as follows:

"112 Exclusion of value of excepted assets

(1) In determining for the purposes of this Chapter what part of the value transferred by a transfer of value is attributable to the value of any relevant business property so much of the last-mentioned value as is attributable to any excepted assets within the meaning of subsection (2) below shall be left out of account.

(2) An asset is an excepted asset in relation to any relevant business property if it was neither –

(a) used wholly or mainly for the purposes of the business concerned throughout the whole or the last two years of the relevant period defined in subsection (5) below, nor

(b) required at the time of the transfer for future use for those purposes …

(3) Subsection (2) above does not apply in relation to an asset which is relevant business property by virtue only of section 105(1)(d) above, and an asset is not relevant business property by virtue only of that provision unless either –

(a) it was used as mentioned in that provision throughout the two years immediately preceding the transfer of value, or

(b) it replaced another asset so used and it and the other asset and any asset directly or indirectly replaced by that other asset were so used for periods which together comprised at least two years falling within the five years immediately preceding the transfer of value;

but in a case where section 109 above applies this condition shall be treated as satisfied if the asset (or it and the asset or assets replaced by it) was or were so used throughout the period between the earlier and the subsequent transfer mentioned in that section (or throughout the part of that period during which it or they were owned by the transferor or the transferor's spouse).

(4) Where part but not the whole of any land or building is used exclusively for the purposes of any business and the land or building would, but for this subsection, be an excepted asset, or, as the case may be, prevented by subsection (3) above from being relevant business property, the part so used and the remainder shall for the purposes of this section be treated as separate assets, and the value of the part so used shall (if it would otherwise be less) be taken to be such proportion of the value of the whole as may be just.

(5) For the purposes of this section the relevant period, in relation to any asset, is the period immediately preceding the transfer of value during which the asset (or, if the relevant business property is an interest in a business, a corresponding interest in the asset) was owned by the transferor or, if the business concerned is that of a company, was owned by that company or any other company which immediately before the transfer of value was a member of the same group.

(6) For the purposes of this section an asset shall be deemed not to have been used wholly or mainly for the purposes of the business concerned at any time when it was used wholly or mainly for the personal benefit of the transferor or of a person connected with him."

Analysis

15. It is common ground that the declarations of trust by Mr Dance to create the Settlement amounted to a disposition involving a chargeable transfer of value. The sole issue before me is whether on the agreed facts the transfer of value arising on the disposition qualifies for BPR.
16. It is common ground that the land transferred by Mr Dance into the hands of the Trustees was not itself a business. It had previously formed part of the assets of the farming business carried on by Mr Dance. The land had development value above and beyond its agricultural value. By virtue of s. 3(1) and the loss to donor principle, the reduction in the value of Mr Dance's estate arising from the creation of the Settlement reflected that enhanced development value of the land, which gives the amount of the value transferred by the transfer.
17. BPR under s. 104 is available only where the relevant transfer of value is attributable to the value of any relevant business property. The question is whether the transfer of value associated with the transfer of the land is to be regarded as attributable to the value of Mr Dance's farming business (which itself constituted "relevant business property" by virtue of s. 105(1)(a)) at the time of the transfer.
18. Mr Massey submitted that, as a matter of characterisation of the agreed facts, the value transferred by the transfer of value might be regarded both as attributable to the value of Mr Dance's farming business as conducted by him immediately before the transfer (which was "relevant business property" for the purposes of the Act) and as attributable to the value of the land transferred (which would not be "relevant business property" for the purposes of the Act). He submitted that for the purposes of the Trustees' claim for BPR it did not matter that the attribution could be to the value of the land transferred, so long as it could also be said that the attribution could also be to the value of Mr Dance's business. The Act contemplated that these categories could overlap, and the operation of s. 104 did not require a choice to be made to make an attribution exclusively to one category or the other. On the contrary, it was because the land transferred was used in the business that the value to be attributed to it fell to be attributed to the value of the business, by operation of s. 110. It was sufficient for s. 104 to come into play that a possible and proper characterisation was that the value transferred by the transfer of value could be regarded as attributable to the value of Mr Dance's farming business. Since the land had, before the transfer, been an asset used in the farming business, s. 110 showed that a possible and proper characterisation was that the value transferred by the transfer of value could be regarded as attributable to the value of Mr Dance's business (which was "relevant business property"), so that BPR is applicable under s. 104.
19. The thrust of the submission of Mr Tidmarsh QC for HMRC was that, on proper application of s. 104, a choice does have to be made whether the value transferred by the transfer of value is attributable to the value of Mr Dance's farming business or is attributable to the value of the land. He submitted that this approach to the operation of s. 104 is supported by the way in which ss. 199, 216, 227 and 237 of the IHTA are drafted and fall to be applied. On the footing that a choice has to be made whether to characterise the value transferred by the transfer of value as attributable to the value of the land or as attributable to the value of Mr Dance's business, Mr Tidmarsh submitted that that the proper characterisation was that they were attributable to the value of the land rather than the business. In the context of the sort of arrangement created by Mr Dance, Mr Tidmarsh submitted that the operation of those other provisions, which he said are expressed in materially similar terms to s. 104(1), indicates that the draftsman assumed that the choice of characterisation does have to be made and that the proper characterisation would be as HMRC had determined. Accordingly, BPR would not necessarily be available under s. 104 in this case (he did accept, however, that a determination of this point of construction in favour of HMRC would leave other points relevant to the application of BPR potentially available to the Trustees, so that a further hearing would be required before a Special Commissioner for the availability of BPR to be finally determined).
20. For the purposes of determining the preliminary issue before me, the proper approach to the question of attribution for the purposes of s. 104 is critical. If, on proper construction of s. 104, that question requires a choice to be made whether to attribute the value transferred by the transfer of value to the value of the land or to the value of the business (i.e. as mutually exclusive categories), then in my view, for reasons given in the next paragraph, the proper characterisation on the agreed facts is that the attribution should be to the value of the land transferred rather than to the business. On that basis, it would not be established on the agreed facts that BPR was available under s. 104 and HMRC's appeal should be allowed. On the other hand, if, as Mr Massey submits, s. 104 does not require such an exclusive type of characterisation to be made, then since it is possible to characterise the value transferred by the transfer of value as attributable to the value of the business as well as to the value of the land itself, BPR would be available under s. 104 as the Special Commissioner held.
21. If it is relevant to choose the proper attribution of the value transferred by reference to the value of the business or by reference to the value of the land itself, then in my view the clearest and most natural attribution would be by reference to the value of the land itself rather than the business. When Mr Dance formed the intention to transfer the land into a trust settlement, his predominant intention was no longer to hold it for the purposes of using it in his business, but rather to hold it with a view to giving it to others by removing it from the assets used in his business. The transfer which he proposed to make was in no way made for the purposes of his business (he was not, for example, proposing to sell the land in a transaction to realise money for use in his business, as would be the case with a sale of stock in a trading business), but rather was to be made for the purpose of removing assets from his business with no corresponding benefit for his business. The process of designating the land to be included in the transaction and then giving instructions for the relevant documents to effect the dispositions in question amounted to a process of setting the land apart from his business in order then to transfer it to the Trustees, and the execution of the transfers in question was the culmination of that process and gave effect to his intention to treat the land as property apart from his business. Mr Dance thereby chose to treat the land separately from the farming business, as property with the simple character of land, and it would be appropriate to characterise the value transferred by the transfers of value as attributable to the value of the land qua land, rather than as attributable to it in its character as an asset used in Mr Dance's business.
22. However, in my judgment, the submissions of Mr Massey for the Trustees on the correct approach to be adopted in relation to s. 104 are correct, the Special Commissioner correctly applied that provision, and the submissions of the HMRC to the contrary fall to be rejected. I reach this conclusion for the following reasons.
23. First, the approach for which Mr Massey contends, has the very considerable merit in a taxing statute of simplicity and certainty in the application of s. 104. If s. 104(1) is interpreted as Mr Massey submits, citizens can know clearly when tax may be charged and when BPR is to be available, and can plan their affairs accordingly. It appears that the draftsman has aimed for a reasonable degree of simplicity in the operation of the IHTA, as is indicated by the basic application of the loss to donor principle in its principal operative provisions (in particular, the use of the simple test for a transfer of value and its amount in s. 3(1) and s. 5 by reference to the value of the transferor's estate before and immediately after a disposition), by the use of the general concept of a "business" in s. 105(1)(a) as a form of property distinct from its fluctuating component assets and the incorporation of s. 106 to avoid the necessity for detailed accounting in relation to such component assets in determining whether BPR should be available or not. Similarly, s. 110 gives a straightforward test for the value of a business at any given point in time; and in my view the natural reading of the rather convoluted formula in s. 104(1) (whether value transferred by a transfer of value "is attributable to the value of any relevant business property" – rather than simply saying "is attributable to any relevant business property") involves, in the case of a business, direct cross-reference to the simple test in s. 110 to determine whether the value transferred is attributable to the value of the business. The test in s. 110 can readily be applied before and immediately after a disposition, to give a change in value attributable to a business which works in harmony with the basic test in s. 3(1) and which accords with, and closely resembles in the special business context, the general basic test in s. 5 to value a person's estate for the purposes of application of s. 3(1).
24. By contrast, the approach proposed by HMRC would involve a more complex and uncertain evaluative exercise to be undertaken, to decide whether to attribute the value transferred to a business or to some property used in the business. I do not think it is plausible to suppose that Parliament and the draftsman intended that there should be this additional layer of complication and uncertainty (requiring application of what is in effect a sort of metaphysical test of attribution) in the operation of the IHTA.
25. Second, I accept Mr Massey's submission that the general principle governing the operation of the IHTA is the loss to donor principle, which directs attention to changes in the value of the transferor's estate rather than in that of the transferee, and that the basic approach in the Act (save in cases where explicit provision is made to the contrary) is that any charge to tax does not turn upon what happens to property transferred when it is in the hands of the transferee. There is nothing in ss. 104(1), 105(1)(a) or 110 to displace the operation of these features of the general scheme in the Act. Indeed, on their natural interpretation they tend to reinforce the impression that these features of the general scheme should also apply in the context of BPR. For BPR to be available in respect of a transfer of value relating to a business there is no requirement that the property transferred should be a business which retains its character as a business in the hands of the transferee, or even that the property transferred should itself have the character of a business. In line with the basic approach in the IHTA to focus on the position of the transferor before and immediately after a disposition, if property is used by the transferor in his business up to the point of the transfer of that property (so that, by virtue of s. 110, it contributes to the value attributable to that business in his hands) and immediately after its transfer the value attributable to the business in his hands is reduced by the value of that property (by virtue, again, of s. 110), it seems natural to say in the context of s. 104(1) that the value transferred by the transfer of value involved in the transfer of that property is attributable to the value of the business in the hands of the transferor (as given by the definition in s. 110).
26. Moreover, the rationale for BPR is to provide relief for, and thereby encourage, the use of assets in a business. But the absence of any requirement that business assets transferred should be used for any business purpose in the hands of the transferee shows that the object of the exemption is directed to encouraging the transferor to use the assets in question in his business. That object is fully met by the construction of s. 104 and associated provisions for which Mr Massey contends, since on that construction BPR will only be available if the transferor does indeed use the assets in question in his business right up to the point when the transfer takes effect.
27. Third, I agree with Mr Massey that s. 112(1) tends to indicate that the draftsman did not intend the reliefs under Part V of the IHTA to operate by reference to the exclusive categories of attribution for which Mr Tidmarsh contended. Rather, s. 112(1) shows that the draftsman contemplated that the value of particular assets could be attributable to "relevant business property" (such as a business) and also attributable to the assets themselves. It also indicates that in such cases where one can characterise the value associated with an asset as attributable to relevant business property and also as attributable to the asset itself, specific provision is required to remove the value associated with that asset from the operation of BPR.
28. Fourth, I accept Mr Massey's submission that the construction of s. 104(1) for which he contends provides for an application of BPR in relation to a business which is more in harmony with the other instances for application of BPR contemplated by s. 105(1) than the construction proposed by HMRC. He correctly emphasises that the simple issue in each case is whether the value of the transferor's relevant business property decreased as a result of the transfer of value; the issue is not as to the nature or value of the assets transferred, looked at in isolation. For the detail of the points he made on this, to which Mr Tidmarsh had no good reply, it is most convenient to quote the relevant parts of Mr Massey's skeleton argument, as follows:

"S.105(1)(a) - interest in a business

(i) Suppose two farming partners jointly make a gift of some of the partnership assets. Each thereby makes a transfer of value. Whether the value transferred is attributable to the value of relevant business property depends on whether his interest in the partnership business is less valuable after the transfer. It does not depend on the value of the particular assets transferred. The relevant question is: Has the value of the transferor's interest in the business decreased as a result of the transfer? It is not answered by investigating the nature or status or value of the particular asset transferred.

(ii) Suppose that Mr Dance had carried on his farming business in partnership with his wife on equal terms as to income and capital profits, and that all the land farmed had been partnership property. Suppose that the partners had given away the land and cottages actually given in the instant case to the Trustees. Plainly the interest in the business of Mr Dance (and that of Mrs Dance) would have diminished in value as a result of the disposition. Plainly the value transferred by each of them would have been attributable to the value of his/her interest in the business.

S.105(1)(b) - quoted securities

(iii) Suppose the 'relevant business property' in question was unquoted securities of a company which gave the transferor control of the company immediately before the transfer (the type mentioned in s. 105(1)(b)) – say 55 securities out of the 100 similar securities in issue, such as to give him control of the company. If he transferred 10 of his securities, would BPR be available? In the Trustees' submission it would be and should be, in the same way that full BPR would be available if an individual held 55 of the issued share capital of 100 ordinary unquoted shares of a company (relevant business property within s. 105(1)(bb)) and gave away 10 shares. But to be consistent with their approach in this case, HMRC would presumably have to argue that no BPR was available on the transfer of the 10 securities. Looking at the gift of the 10 securities, the value transferred would be attributable to the value of the 10 securities given away and the 45 securities retained. But neither of these holdings, viewed separately, would constitute relevant business property within s. 105(1)(b).

S.105(1)(bb) – unquoted shares in a company

(iv) Take the case where the 'relevant business property' in question is unquoted shares in a company (the type mentioned in s. 105(1)(bb)). Suppose Mr Dance had carried on his business through a trading company in which he held all of the (say) 100 issued shares, the company owning all the farmland and farm cottages. Suppose he had caused the company to issue 102 new shares of the same class directly to a child. The event would be treated (whether or not it was actually so) as a disposition by Mr Dance by s. 98 IHTA, and as a transfer of value by him under s. 3 IHTA. But the value transferred by the transfer of value would be plainly attributable to relevant business property, his shares being the only property in his estate which would be diminished in value by the transfer. So the transfer would plainly be eligible for BPR.

(v) The same result should apply if the company, with the shareholder's consent and at his direction, gave land away, for example, to the shareholder's child. Such a transfer by the company, because it was a "close company" would be treated as a transfer of value by the shareholder under s. 94 IHTA. The value transferred by the transfer of value would be attributable to the value of the land and if the Crown's argument were correct no relief would be available. But the value transferred would plainly be attributable to the value of the transferor's relevant business property since the only property in his estate which would be diminished in value by the transfer would be the shares. It would plainly be eligible for BPR.

S.105(1)(d) – land owned by partner, used in partnership of which he is a partner

(vi) Suppose [Mr Dance] had farmed the land in partnership before the transfer but that the land was not a partnership asset. If he had transferred the land to the Trust, then HMRC would presumably accept that BPR was available (at the 50% rate under s. 104(1)(b)), even though [Mr Dance] transferred only part of it. In the present case, however, where [Mr Dance] farmed the land as a sole trader and the land was an asset of that business, then if HMRC are correct no relief is available. There is no policy reason for such an alleged distinction in treatment."

29. Finally, I turn to consider the detail of the argument put forward by Mr Tidmarsh by reference to ss. 199, 216, 227 and 237 of the IHTA. These provisions appear either in Part VII of the Act (s. 199), which deals with the mechanics of who should be liable for tax which is due according to the main operative provisions in the earlier Parts of the statute, or in Part VIII (ss. 216, 227 and 237), which deals with administration and collection of the tax.
30. Two points should be made here. First, whatever the detailed operation of those provisions relating to the mechanisms for collecting the tax, I do not think that such guidance as they might provide would serve to outweigh the matters set out above as indicators of the true construction and operation of s. 104(1) in the present context. Secondly, on the detailed argument regarding the operation of those provisions, I consider that Mr Massey gave sufficient and appropriate explanations to explain their intended operation and effect in a way which does not impinge upon the approach to the application of s. 104(1) for which he contended.
31. I deal with these provisions in turn. Section 199(1) provides:

"199 Dispositions by transferor

(1) The persons liable for the tax on the value transferred by a chargeable transfer made by a disposition (including any omission treated as a disposition under section 3(3) above of the transferor are –

(a) the transferor;

(b) any person the value of whose estate is increased by the transfer;

(c) so far as the tax is attributable to the value of any property, any person in whom the property is vested (whether beneficially or otherwise) at any time after the transfer, or who at any such time is beneficially entitled to an interest in possession in the property;

(d) where by the chargeable transfer any property becomes comprised in a settlement, any person for whose benefit any of the property or income from it is applied."

32. The formulation in sub-paragraph (c) ("attributable to the value of any property") resembles that in s. 104(1) ("attributable to the value of any relevant business property"). Mr Tidmarsh submitted that in the present case the relevant property for the purposes of s. 199(1)(c) would be the land transferred, rather than the business which Mr Dance carried on, so that by virtue of this provision the Trustees would be liable for any tax due in respect of the transfer. In my view, the answer to this point is to observe that the tax may be attributable both to the value of property which is transferred and to the value of property which is retained by the transferor. This possibility is inherent in the approach to the construction of s. 104 which I think is correct, and to interpret s. 199(1) in this way does no violence to (but, rather, promotes) the purpose of that sub-section, which is to impose liability for the tax upon a range of persons who may be connected with the relevant transaction or property involved in it. Thus, in circumstances like the present case, but putting aside the question of BPR and assuming that the farmer transferor continued to carry on his farming business after the transfer of the land (e.g. using the land under licence, or using other land not transferred), I consider that both the farmer and the Trustees would be liable for the tax. The farmer would be liable as transferor, under s. 199(1)(a), and also under s. 199(1)(c) as the owner of the business, which the Act treats as property, and to the value of which the tax is attributable (since it is a change in the value of the business as property in the farmer's estate calculated according to s. 110 which gave rise to the taxable transfer of value). The Trustees would be liable under s. 199(1)(c), as persons in whom the land is vested, since the tax is also attributable to the value of the land (which was property in the farmer's estate, and the removal of which from his estate equally gave rise to the taxable transfer of value).
33. Mr Tidmarsh did not develop the argument in relation to s. 216 (delivery of accounts) at any length. It is sufficient to say that similar points apply in relation to s. 216 as in relation to s. 199(1).
34. Section 227 provides, so far as relevant, as follows:

"227 Payment by instalments – land, shares and businesses

(1) Where any of the tax payable on the value transferred by a chargeable transfer is attributable to the value of qualifying property and –

(a) the transfer is made on death, or

(b) the tax so attributable is borne by the person benefiting from the transfer, or

(c) the transfer is made under Part III of this Act and the property concerned continues to be comprised in the settlement,

the tax so attributable may, if the person paying it by notice in writing to the Board so elects, be paid by ten equal yearly instalments. …

(2) In this section "qualifying property" means –

(a) land of any description, wherever situated;

(b) shares or securities to which section 228 below applies;

(c) a business or an interest in a business. …

(4) Notwithstanding the making of an election under this section, the tax for the time being unpaid, with interest to the time of payment, may be paid at any time; and if at any time (whether before or after the date when the first instalment is payable) the whole or any part of the property concerned is sold, the tax unpaid (or, in the case of a sale of part, the proportionate part of that tax) shall become payable forthwith (or, if the sale precedes the date when the first instalment is payable, on that date) together with any interest accrued under section 233 below. …

(7) For the purposes of this section –

(a) the value of a business or of an interest in a business shall be taken to be its net value;

(b) the net value of a business is the value of the assets used in the business (including goodwill) reduced by the aggregate amount of any liabilities incurred for the purposes of the business; …"

35. Section 227 thus provides an option to pay tax by instalments in certain circumstances, where any of the tax payable "is attributable to the value of qualifying property". In this context, as Mr Massey submits, the draftsman is not (as in s. 104) looking back to the transfer of value to ask what value transferred may be attributable to part of the transferor's estate which is "relevant business property", but is looking at the position after the transfer has taken place to determine the property to the value of which the tax is attributable during the ten year period after the transfer. Unlike in s. 104, there is no exclusive focus upon property in the hands of the transferor. The point made in paragraph [32] above is also applicable in this context.
36. Section 237 provides, so far as relevant, as follows:

"237 Imposition of charge

(1) Except as otherwise provided, where any tax charged on the value transferred by a chargeable transfer, or any interest on it, is for the time being unpaid a charge for the amount unpaid (to be known as an Inland Revenue charge) is by virtue of this section imposed in favour of the Board on –

(a) any property to the value of which the value transferred is wholly or partly attributable …

(2) References in subsection (1) above to any property include references to any property directly or indirectly representing it.

(3) Where the chargeable transfer is made on death, personal or movable property situated in the United Kingdom which was beneficially owned by the deceased immediately before his death and vests in his personal representatives is not subject to the Inland Revenue charge; and for this purpose "personal property" does not include leaseholds and the question whether any property was beneficially owned by the deceased shall be determined without regard to section 49(1) above. …"

37. In my view, the point made in paragraph [32] above also applies here. Again, in circumstances similar to the present case (leaving aside the question of BPR and assuming that the farmer transferor continues to carry on a farming business after the transfer), both the land transferred and the business retained by the farmer would be "property to the value of which the value transferred [by the relevant chargeable transfer] is wholly or partly attributable". Therefore, an Inland Revenue charge would arise in relation to both the land itself and the business. This is not surprising, in my view, since it is to be expected that the imposition of an Inland Revenue charge to facilitate collection of tax as necessary out of property implicated in the relevant transaction would follow the imposition under s. 199(1)(c) of liability to pay the tax by reference to such property.
38. (It is not necessary for present purposes to resolve the following small point which arises on the interpretation of s. 237, since it is not a critical point in terms of the interpretation of s. 237 generally and for the explanation of its operation compatibly with the Trustees' interpretation of s. 104(1). However, I should observe that this analysis of the operation of s. 237 on the facts postulated in paragraph [37] above assumes that the "property" in s. 237(1)(a) which may be made subject to a charge includes a business, albeit that a business is not in terms of the general law itself property of a form which is readily or usually made subject to a charge. So far as that is concerned, it may be said that the IHTA generally treats a business as a form of property, and one can have a sale of a business, so that it seems it would be conceptually possible to envisage a charge over the proceeds of sale of a business. Hence it is quite possible – and I think likely - that the draftsman contemplated that such a charge in relation to a business may arise under s. 237(1).)

Conclusion

39. For the reasons given above, HMRC's appeal against the decision of the Special Commissioner is dismissed.