Will an airport parking space be eligible for business property relief? BKL tax adviser Terry Jordan answers this for Taxation magazine’s readers’ forum.
My client is an independent financial adviser. He has been offered an investment opportunity for clients that involves them investing in individual airport parking spaces. The plan is that each client will hold full title on the parking space, which will be registered in their name with Land Registry.
The purchase price of the space will be £20,000 and it will then be fully managed with a target yield of 12% a year.
My client has asked whether such an investment would attract business property relief for use with clients wishing to mitigate their inheritance tax liability. My understanding is that it would be eligible for relief.
Query 18,589 – Fly Boy
Reply from Terry “Lacuna” Jordan, BKL
The inheritance tax business property relief is designed to reflect the risk and lack of liquidity associated with holding relievable property.
The categories of property eligible for relief are set out in IHTA 1984, s 105. They comprise businesses (such as sole trades), interests in businesses (including partnership interests), unquoted securities giving control of a company, unquoted shares, control holdings in quoted companies, land and buildings, and machinery and plant used by a company controlled by the owner or used by a partnership of which the owner is a partner.
The relief is denied by s 105(3) if the business consists wholly or mainly of making or holding investments. HMRC are very jealous of the relief, particularly for land, and have successfully challenged claims for it in a number of cases.
In Martin v Horsfall (Executors of Violet Moore deceased) v CIR  SSCD 5 it was held that, despite the significant level of activity by Mrs Moore in managing the commercial premises, the business consisted of making or holding investments and relief was denied.
Similarly in Burkinyoung (Executor of Burkinyoung deceased) v CIR  SSCD 29 relief was denied to a business running four flats on short hold tenancies.
HMRC’s Inheritance Tax Manual at IHTM25276 states:
“It will be clear from both this and the Moore case that IHTA 1984, s 105(3) can be applied without too much regard to the extent of personal involvement by the deceased/transferor. However, where services, outside those required of a landlord, are supplied for a separate consideration, they need to be taken into account when deciding whether the ‘mainly’ qualification in IHTA 1984, s 105(3) is met. In most cases the level of services provided will not be sufficient to weigh the balance away from ‘investment’.”
More recently, relief was denied to furnished holiday lettings in HMRC v Lockyer & Robertson (Mrs NV Pawson’s Personal Representatives)  STC 976.
While Fly Boy has not told us what being “fully managed” entails, in this writer’s view HMRC would deny business property relief on the ground that the parking spaces fell on the investment side of the fence.