Liability of rent

Treatment of rental payment on business premises

 

The deceased had owned a fine art business which he ran from premises occupied under a ten-year lease. After his death, the remaining leasehold interest was surrendered to the landlord. 

 

His executors submitted an IHT400 which included a claim for business property relief relating to the stock in trade, but excluding his liabilities under the lease. They also made a claim for £116,572 as a deduction against his general estate – this included the rental payment under the remaining term of the lease. HMRC said the rent should be included in the business property relief claim. 

 

The taxpayers appealed, saying the rental payment was not a business liability for the purposes of business property relief (IHTA 1984, s 105).

 

The First-tier Tribunal decided the rental payment was a liability of the deceased’s business, so fell within s 110(b). It was paid from his business account and recorded in the business accounts as business deductions. 

 

The judge said the general intention of the business property relief provisions was to ensure that all business assets should be free of inheritance tax to preserve the viability of a family business. The lease was required to carry on the business and it seemed ‘counter to the general scheme of IHTA 1984 that it should be excluded from that relief’. The rental payment should be treated as forming part of the estate that was eligible for relief.

 

The taxpayers’ appeal was dismissed.