Probate lawBy Lesley King, College of Law, LondonInheritance taxMichael William Hardcastle and Ruth Margaret Hardcastle (Executors of Jack Ronald Vernede deceased) v Inland Revenue Commissioners LTL 29 November 2000The case involved computing the net value of the business of a deceased Lloyd's underwriter for purposes of business property relief (BPR).

He had carried on underwriting activities at Lloyds.

It was accepted that the net value of his business interest was the amount of funds he held there.The issue was whether losses in the form of amounts owing on accounts for which a result had not been notified at the time of death were 'a liability incurred for the purposes of the business', per Inheritance Tax Act 1984, s.110(b), and so deductible from the net value of the assets used in the business or from the general estate.The court held that the accounts represented ordinary commercial contracts made in the course of carrying on the underwriting business.

They would not be assets for the purposes of BPR if they produced a profit, nor would they be business liabilities if they produced a loss.

Hence, for IHT purposes, the liabilities would be deducted from the value of the other assets in his estate.

Weston v Inland Revenue Commissioners, The Times, 29 November 2000; LTL 29 November 2000This is yet another case involving caravan sites, considering whether running such a site qualifies for business property relief (BPR) or whether it is excluded under Inheritance Tax Act (IHTA) 1984, s.105(3) as an activity consisting mainly of making or holding investments.The business comprised: (i) the purchase and sale of caravans; (ii) the collection of pitch fees; (iii) the maintenance and administration of the park and its facilities; and (iv) the supply (for consideration) of the electricity (and some bottled gas) used by the pitch holders.

The park was exclusively residential - the caravans giving the appearance of small neat bungalows.

All caravans were purchased either from the company or from existing residents.

Caravan sales fluctuated occupying roughly 25 per cent of the time of the company's employees, but profits from such sales only exceeded profits from pitch fees in one of the last seven relevant years.

There was neither a shop nor a social club.The court referred to the decision of Lightman J in Cook v Medway Housing Society Ltd [1997] STC 90 in which he said that land is generally held as an investment where gains are derived from payment to the owner for use of the property.

A landlord would normally hold his property as an investment even if he had to engage in incidental activities of maintenance and management.The special commissioner had found that the principal business of the company was the operation of the park, and not the sale of caravans, or any other associated activity.

It, therefore, followed that the business of the company consisted mainly of making or holding investments and did not qualify for business property relief.

That approach had been correct in law, and there was ample material to justify his decision.For two cases where the taxpayer successfully claimed BPR see Farmer v IRC Special Commissioners [1999] STC (SCD) 324 and Furness v IRC [1999] STC (SCD) 232.

The issue is always one of fact.