“section 105 of the 1984 Act is essentially driving at businesses which can properly be characterised as investment businesses, that is, where there is little or no element of trading or the provision of services in consideration of monies received.”
“was the business mainly one of holding investments”
“Whilst the 2001 Conacre Licence Agreement was drawn up on the footing that the 'Licensor Claims Entitlements', and hence was drawn clearly with an eye to the Basic Payment Scheme ('BPS') we do not consider it relevant that the Ministry (the Department of Agriculture and Rural Development: 'DARD') has latterly categorised the conacre holder as the 'active farmer' for the purposes of claiming entitlements and receiving payments under the Basic Payment Scheme. Regardless of whether that approach is right or wrong, it is a departmental decision which goes principally to determining who should be entitled to claim the 'entitlements' under the BPS. That departmental decision cannot and does not have any substantive bearing on our assessment as to who is in occupation wholly or mainly for the purposes of husbandry. Even if the position were reversed and the owner (and not the conacre holder) were regarded as the active farmer, that could not be determinative either since, as Mr Hanna QC pointed out to us, and we accept, the conacre holder and the grantor are still entirely free as between themselves to agree to transfer the money actually paid under the BPS Scheme from one to the other.”
“that it is what one would expect to see on the farm of elderly male farmers in the north of England who had suffered the privations of wartime and were not inclined to waste or discard something which might come in useful.”
“Thus the principles which have been established for deciding whether a farmhouse is of a character appropriate to the property may be summarised as: first, one should consider whether the house is appropriate by reference to its size, content and layout, with the farm buildings and the particular area of farmland being farmed (Korner); secondly, one should consider whether the house is proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land or pasture in question (Starke); thirdly that although one cannot describe a farmhouse which satisfies the "character appropriate" test one knows one when one sees it (Dixon); fourthly, one should ask whether the educated rural layman would regard the property as a house with land or a farm (Dixon); and, finally, one should consider the historical dimension and ask how long the house in question has been associated with the agricultural property and whether there was a history of agricultural production (Dixon).”
“But “for the purposes of agriculture” is not further qualified. This no doubt reflects the wide range of activities that can constitute agriculture. It also recognises that the class of properties defined as agricultural property by section 115(2) includes those that are directly used in the functioning of the agricultural activity, such as land and farm buildings, as well as those that are less directly employed but nonetheless provide the structure within which the agricultural activities are conducted. Farm cottages are an example of the latter. Their function is to accommodate people engaged in the relevant agricultural activities.”
“…in the context of the inheritance tax relief for agricultural property in respect of cottages (or indeed any property other than agricultural land), such an extended meaning has to be given to the words if the clear objective of the statutory provisions is to be given effect. … [24] In relation to the main farmhouse on a farm, it may be usual that the active farmer, be he the freehold owner or a tenant farmer, will occupy it. In those circumstances, the house will almost certainly be occupied for the purposes of agriculture. It needs to be borne in mind, however, that that will not always be the case. A landowner might let the whole of his farm to a tenant farmer and have nothing do with the farming business carried on. But he might exclude from the tenancy and retain for his own use, the main house, being a house appropriate to the farm as a whole. The retained house would not, in those circumstances, be within the exemption for agricultural property. This is because the house, assuming it is a 'farmhouse' within the meaning of s 115, would not be occupied for the purposes of agriculture, being occupied by the landowner for his own purposes, purposes having nothing to do with the farming business carried on by the tenant farmer. Mr Davey has drawn our attention to the decision in Rosser v IRC [2003] STC (SCD) 311 (Special Commissioner Michael Tildesley) at para 53; on the basis of that decision, it might be argued that the house is not, in fact, a 'farmhouse' because it is not lived in by the farmer. We doubt very much that that is correct but it is not necessary to decide the point.”
“We derive the following principles from McCall and George as to the proper construction of section 105(3): (1) investment is not a term of art but has meaning an intelligent businessman would give to it; such a person would be concerned with the use to which the asset was being put and the way it was being turned to account. McCall [10] (2) a property may be held as an investment even if the person holding it has to take active steps in connection with it: McCall [14] Girvan LJ said in that case that what was clear from the authorities is that a landowner who derives income from land or buildings will be treated as having a business of holding an investment notwithstanding that in order to obtain the income he carries out incidental management and maintenance work, finds tenants and grants leases; (3) land is generally held as an investment where gain is derived from payments to the owner for the use of the property: (McCall [11] George [15]); (4) thus the exploitation of a proprietary interest in land for profit is capable of being an investment activity so that the land is an investment, and part of the business is holding it: the holding of property for letting is generally the holding of it for investment (George [18]); (5) but there is a wide spectrum at one end of which is the exploitation of land by the granting of a tenancy and at the other end of which is the exploitation of premises as a hotel or by a shopkeeper. The land subject to tenancy would generally be an investment and any business encompassing it would therefore include holding investments, but the business conducted at a shop or hotel would not be one wholly or mainly of holding investments: (George [12]); (6) property management is part of the business of holding property as an investment. To this extent investment business activity is not limited to purely passive business. "Management" for these purposes includes the activity of finding tenants and maintaining the property as an investment but does not extend to providing additional facilities whereby the landlord might earn additional fees (e.g. for cleaning and heating) whether or not included in the lease or covered by the rent: George [23]; (7) where there is a composite business it is necessary to look at it in the round (George[13]); (8) where there is a composite business the statutory words must be applied as a whole to all the activities: one is not required to open an investment "bag" into which all the activities linked to an investment are placed (because they are ancillary to the investment) and weigh that against the remainder; instead one looks at the business as a whole (George [60]). We do not think that the appellants have any need to seek to dilute the effect of Henderson J's statement. He makes it clear what he describes is "generally" the case - leaving room for exceptions; and he defines the cases he is dealing with as those where the owning and holding of land is "in order to obtain an income from it", but the essence of the Appellants' argument is that the activities of the business at Carnwethers are such that it is used in major part for the provision of other activities and the income is derived as much from those activities as from the supply of land. Nevertheless we accept that we must be vigilant in having in mind the spectrum and assessing where business lies on that spectrum; and we agree that there is no presumption which requires rebuttal that a business which involves the exploitation of land for profit is mainly an investment business: the facts must be looked at in the round. To our minds a purposive approach to the construction of any statutory provision is always required, but the purpose must be drawn from the statutory context: some provisions are so prescriptively drafted that they have little purpose but their mechanism although even then particular words may have meanings illuminated by the overall statutory purpose. To our minds the context of “mainly holding investments” is that it sits alongside “dealing in securities…shares land or buildings” which indicates that holding investments is something different from dealing in them but to our minds this looks not to intention but to the objective pattern of use of an investment. Vigne is also of note for the FTT Judge's criticism at [44] of Henderson J's approach in Pawson. Henderson J had asked whether the additional services that had been provided in that case were of such a nature and extent that they prevented the business from being mainly one of holding investments. The Judge in Vigne considered that this transposed the statutory test which properly read was "was the business mainly one of holding investments?"; it was not correct to start with the preconceived idea that it was such a business and then to ask whether that preliminary view should be altered. We agree with the test proposed by the Judge in Vigne: namely, that one must ask is the business mainly one of holding investments, but we think that his criticism of the approach of Henderson J is misplaced. If one looks at the components of a business and asks "is this mainly holding investments?" The answer to that question is obtained first by looking at the components and asking in relation to each whether any part of them is the holding of investments or not holding investments, and then secondly by stepping back to look at the whole picture. If at the first stage one identifies an element which has a substantial investment component, the next question is do the other non-investment components outweigh it?. What one is not entitled to do (and was a mistake that Laddie J made in George:[60]), is to identify one component - an investment component - and lump with it everything ancillary or incidental to it and then compare that agglomeration with what is left. Each part must be viewed separately and then as part of the whole.”
“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 with a single farm business, which might otherwise be inherited intact by a daughter or son.”
“…we would agree that one of the purposes of the relief is to facilitate the continuance of the farming after the death of the farmer. But that is manifestly not its only purpose…”