Court of Appeal in Northern Ireland Decisions

The statutory context

"A business or interest in a business or share in or securities of a company are not relevant business property if the business or, as the case may be, the business carried on by the company consists 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."

Before property qualifies for business relief it must have been owned by the transferor throughout the two years immediately preceding the transfer. The Revenue accepts that the land was held for the requisite period. It is also accepted by the Revenue that the land qualified for agricultural relief. Section 114 makes provision for the avoidance of double relief. The issue which falls to be determined in this case is whether the property is entitled to the full business relief or whether it fails to qualify as relevant business property because it consists wholly or mainly of the business of making or holding investments. Only the agricultural value will fall out of charge if it is not.

The Special Commissioner's key findings of fact

(a) The land comprised six level fields in grass. At the north east there were watering troughs fed by mains water. At the south west end there is access to a sheugh at which animals might drink. There are two drainage channels on the land. Around the perimeter there is a stone wall for part of the parameter and there is a barbed wire fence along the south east side for 450 yards and along the north west side for 175 yards. The land is grass pasture and since 1983 at least it has not otherwise been cultivated.

(b) Shortly after Mr McClean's death the deceased asked her son in law, Mr Mitchell, to look after the fields. He undertook the work in a voluntary unpaid capacity. The only work done on the land was done by him or by graziers to whom the lands were "let" under seasonal grazing arrangements between 1 April and 1 November each year (described as conacre lettings though this were more correctly agistment arrangements.

(c) The work involved (i) inspection of the perimeter fencing and walls, gates and water supply. (ii) removal of rubbish, unblocking of drains, emergency repairs to vandalised or damaged fencing and tending the drinking troughs; and (iii) informing the grazier of any problems he observed in their animals.

(d) On average the work during the grazing season was about one hour per week and outside that period somewhat less. It was unlikely that more 20 hours per year and likely that between 10 and 15 hours per year on average were spent in repairing fences, posts and wire. Work in cleaning drinking troughs and maintenance of the water system would have been likely to have been 2 to 3 hours with work on land drainage and clearing leaves 4 and 12 hours respectively. Up to 20 hours were spent in cutting and spraying weeds. (In 1994 the whole farm was sprayed by a contractor for £300. In 1993 a contract was entered into to replace 40 meters of vandalised fence.) The Special Commission concluded that Mr Mitchell probably spent about 100 hours a year "tending" the land (by which he clearly meant looking after and maintaining it).

(e) Mr Mitchell did not fertilise the land. That work was done by the graziers to whom the lands were let under the agistment arrangements.

(f) Before his death in 1983 Mr McClean used agents to find graziers for the agistment arrangements. The deceased continued to use the same agents. From 1986 she retained Mr McClelland as her agent. He obtained graziers for 1986 to 1990 and they paid their dues to the agent who accounted to the deceased. Mr Mitchell found graziers to take the land in 1991 to 1992. Mr McClelland again let the lands from 1993 to 1996 for some £1,800 per annum. In 1997 Mr Mitchell arranged for the letting of the lands to his cousin and in 1998 Mr McClelland let the lands.

(g) Up to 1992 Mr McClelland wrote to and sent payments to the deceased. The deceased went to stay with her other daughter in Co Tipperary in 1992 and remained there. Her mental capacity diminished from 1986 onwards and by 1992 she was confused and no longer able to manage her own affairs. From 1995 the deceased no longer understood the nature of her interest in the land. Any agency relationship between Mr Mitchell and the deceased would have terminated by 1995. Mr Mitchell became a constructive trustee for the deceased. His activities in making profits from the land fell to be treated as those of the deceased.

(h) The relevant arrangements with graziers were agreed orally and usually confirmed in writing. A price was generally agreed at a rate per acre. Other terms for grazing "lettings" would be generally understood to be applicable unless there was express agreement to the contrary. These terms included:

(i) that no other grazier would be permitted to graze the land, and the owner would not let his own animals graze the land

(ii) that the grazier's animals could be kept on the land for the period of the letting, eating the grass, drinking the water and being accommodated on the land;

(iii) that the grazier's vet would have access to see animals in the field;

(iv) that the owner would maintain the fencing and be responsible for weed control; and

(v) that the owner would not be required to fertilise the land and the graziers could fertilise it.

The seasonal lettings would be for the period during which the grass was growing (1 April to 1 November). After 1 November the land would become wet and would be damaged by the feet of too many animals. They were thus unsuitable for grazing until the next season.

The Special Commissioner's conclusions

(i) He rejected the argument that the deceased was in the business of providing a service to the graziers in providing grass for their animals. The effect of entering into the agistment arrangements was to make grass on the land available to the graziers. The grass was not made available principally through the tending of the land by Mr Mitchell but by virtue of the letting. The work done by Mr Mitchell was not something additional to or separate from the provision of the land for grazing.

(ii) The deceased did not use the land for animal husbandry.

(iii) The activities of the business consisted of the making available of the land without the separate provision of any substantial other goods or services. The activities of the business did not involve the cutting of the grass or the feeding of the cattle but simply making the asset available for a financial return so that the cattle of the graziers might live and eat there. This was the business of holding an investment.

(iv) The land was used as an investment to make part of a living from it. The use of land by the graziers may not have been exclusive but it was sufficiently exclusive to be clear that the land was being used as an investment.

(v) The deceased's activities were all management activities directly relating to the letting of the lands to the graziers and the whole of the income came from the letting. The activities were not so substantial as to constitute themselves a part of a business.

(vi) The way in which the land was managed and let out to graziers could not be equated with the provision of hotel accommodation the provision of kennelling for cats and dogs or the running of a "pick your own fruit" farm.

"85. What then were the features of the grazing agreements entered into for the fields? I record at paragraph 42 above Mr McClelland's evidence of the terms which would generally be understood to be applicable and I find that those terms by custom or necessary implication would be included in the contract with the grazier. It seems to me that those terms and the guidance in the cases permit the following conclusions:-

(i) The making of the conacre lettings did not deprive Mrs McClean of possession of the fields or of her right to occupy the fields save to the extent that any element of that occupation would interfere with the grazier's right to graze his cattle or sheep.

(ii) The grazier obtained a right as against Mrs McClean to accommodate his animals on the fields for them to graze the fields and be the only person whose animals were to be grazed on the fields. These rights gave a measure of exclusive enjoyment to the grazier. That was not exclusive occupation as it was it was Maurice E Taylor for in that case the conacre tenant could exclude all others from the land, whereas in the case of graziers their rights to exclude others relate only to others with competing or interfering purposes.

(iii) It seems to me that the grazier would not be in paramount occupation (see also Wylie op. cit. at 3.35). Since an agistment holder is entitled to the grazing of the land only, and possession remains with the owner, it is the latter who will usually be in rateable occupation)."

The appellant's contentions

"It is a case of whether it be said of the Commissioners that their finding is perverse or that they misdirected themselves in law by a misunderstanding of the statutory language."

"Thus land is generally held as an investment where gain is derived from payment to the owner from the use of the property and so a landlord will normally hold his property as an investment even if the landlord has to engage in activities of maintenance and management which are required by the lease or incidental to the letting."

"He was not entitled to the use of the land as land. He could only take the herbage, the enjoyment of which even if it could be protected by action against wrongful interference did not vest in McKenna legal occupation for rating or income tax purposes. Between terra and vestura terrae there is a marked distinction."

In that case what was in issue was whether McKenna was liable under Schedule B of the Income Tax Acts in respect of his occupation of the land or under Schedule 4 in respect of profits from grazing cattle. The context of the issue made it necessary to distinguish between tax under two different Schedules and in particular required proof that the grazer occupied the land if liability was to arise under Schedule B. The contract in that instance between the farmer and the landowner, Lord Cloncurry, specifically provided that the lands were to continue in Lord Cloncurry's occupation. The conclusion that the farmer did not occupy the land for income tax purposes was in accordance with the accepted case law. Gibson J may have gone somewhat too far in the opening sentence of the quotation (italicised above) for a grazier does have the benefit not merely of the grass but of the space provided for the accommodation of his cattle. The case does not, however, establish that the deceased in this case was not in receipt of an income in the nature of an income from an investment. Nor does the conclusion by the Special Commissioner that the deceased was in paramount occupation (a rating concept) if correct advance the appellant's case since one must focus on the question whether looking at the business of the creating of agistment arrangements in its full context it falls to be treated as an investment business. The present case does not turn on any special peculiarities of the Irish law relating to conacre or agistments. Rather it turns on an analysis of what was happening on and in relation to the land with a view to ascertaining whether, viewed as a whole, the business fell on the investment or non investment side.

"There is a spectrum at one end of which is the exploitation of land by granting a tenancy coupled with sufficient activity to make it a business, which may be activity in granting tenancies rather than activity in relation to the tenancy once granted. At the other end of the spectrum while land is being exploited, the element of services means that there is a trade such as running a hotel or a shop from premises owned by the trade."

This helpful reference to a spectrum shows that it is necessary to decide where a particular business falls within the spectrum. This necessarily involves a question of fact and degree. It requires a judgment to be made in the light of established facts. Having analysed the evidence and made his findings the Special Commissioner concluded that the arrangement fell towards the lease end of the spectrum not at the hotel or shop premises end. He was fully entitled to do so on the evidence.

[20] Accordingly we conclude that the Special Commissioner's decision must be affirmed and that the appeal dismissed.

"A business or interest in a business, or shares in or securities of a company, are not relevant business property if the business or, as the case may be, the business carried on by the company consists 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."

It is common case here that there was a single "investment" in the sense of a small farm in pasture of 33 acres. It was not suggested that the individual fields could be regarded as separate economic units or investments. The Interpretation Acts provide that in an enactment words in the plural shall include the singular. There is therefore no literal difficulty for the Revenue Commissioners or the Special Commissioner in his finding that the deceased was "making or holding investments" (although see below). However, if one applies the maxim noscitur a sociis then one can see the possibility that Parliament intended a business more akin to one dealing in and holding securities, shares or properties in a portfolio to be excluded from this form of business relief rather than, as here, the management by a widow of a single farm business, which might otherwise be inherited intact by a daughter or son. Paying inheritance tax on a farm which had development value because of it's location may well lead to the break up of the farm unit by the necessity to sell land to pay the tax. Taking a purposive approach to the provision might therefore yield a different outcome from a literal approach. The point was not argued before the Special Commissioner nor before us, apart from a few cursory references towards the conclusion of the case in response to a question from myself. In the circumstances I would like to reserve my position on this issue.

"In my judgment the business was one which consisted wholly or mainly of the making of investments."