Case No: C3/2003/0546
Neutral Citation Number: [2003] EWCA Civ 1763
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE LADDIE)
Royal Courts of Justice
Strand, 
London, WC2A 2LL

Friday 5th December 2003
Before :

LADY JUSTICE HALE
and 
LORD JUSTICE CARNWATH

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Between :

	PHILIP WILLIAM GEORGE and IVOR BERNARD LOOCHIN
(As executors of the Will of Elsie Fanny Stedman, Deceased)
	Appellants	
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	THE COMMISSIONERS OF INLAND REVENUE	Respondent	

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(Transcript of the Handed Down Judgment of
Smith Bernal Wordwave Limited, 190 Fleet Street
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Mark Herbert Esq., QC and Robert Argles Esq. (instructed by Birkett Long) for the appellants.
Hugh McKay Esq. (instructed by Solicitors for Inland Revenue) for the respondent.  

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Judgment
Lord Justice Carnwath : 

Introduction 
1.	This is an appeal by the executors of the will of Elsie Fanny Stedman, who died in August 1998. It concerns the inheritance tax payable on her interest in a company called Dunton Park Caravan Sites Limited (“the Company”). At the time of her death, she held 85 per cent of the shares in the Company. The deceased’s daughter, Mrs Purcell is a director of the Company and has run the business since her father’s death in 1984.
2.	The Company owned and operated a caravan site business. The main components were a residential caravan park, a site for caravan storage, and a club for residents and others. The issue is whether there is an entitlement to 100% business property relief on the transfer of those shares.  That depends, in simple terms, on whether or not the business consisted “wholly or mainly of… making or holding investments”. The Special Commissioner (Dr John Avery Jones) held that it was not; and therefore that business property relief was available. That decision was reversed by Laddie J. The executors appeal to this Court.
3.	This is the first time this question has been considered by the Court of Appeal. We have been shown a number of decisions of the Special Commissioners in which varying conclusions have been reached in relation to such businesses. This is perhaps not surprising. One consequence of the relative imprecision of the statutory test is that the right to business property relief may depend on fine distinctions between businesses, which, to their owners, and for most practical and economic purposes, are virtually identical.  
4.	No doubt it was such considerations, which led the Revenue, in the context of income and corporation tax, to adopt an extra-statutory concession (B29):
“Where the proprietor of a caravan site carries on material activities associated with the operation of that site which constitute trading, there may be included as the receipts of that trade any site income from the lettings of pitches for static or touring caravans, and any income from letting caravans where the letting does not of itself amount to a trade.”
It is not suggested this gives any substantial assistance in the present case. Mr Herbert relied on it as indicating that the same caravan business could generate both “investment” income and “trading” income; but that is not in dispute. The existence of the concession, however, may help to explain why the issue has not given rise to more general controversy in other areas of tax.  
5.	A further consequence of the form of the legislation is that drawing the dividing line in a particular case is a matter for the Commissioners, as the tribunal of fact.  Appeal to the High Court is on a question of law only.  That requires either the finding of a specific mis-direction as to the law, or a conclusion that the Commissioners have acted “without any evidence or upon a view of the facts which could not reasonably be entertained.” (Edwards v Bairstow [1956] AC 14, 29).
The statute
6.	The relevant provisions are in the Inheritance Tax Act 1984 (“IHTA 1984”). Inheritance tax is charged on a “transfer of value” made by an individual (ss 1,2). On the death of any person, tax is charged as if, immediately before death, there were a transfer of value equal to the value of the person’s estate (s 4). Part V of the Act gives various forms of relief from tax, one of which is relief on business property. 
7.	Section 104(1) provides:
“(1)	Where the whole or part of the value transferred by a transfer of value is attributable to the value of any relevant business property, the whole or that part of the value transferred shall be treated as reduced – 
(a) in the case of property falling within section 105(1)(a)(b) or (bb) below, by 100% …”
8.	“Relevant business property” is defined by section 105 which, insofar as relevant, provides:
“(1)	Subject to the following provisions of this section … in this Chapter “relevant business property” means, in relation to any transfer of value, - 
(a)	property consisting of a business or interest in a business,
(b) 	securities of a company which are unquoted and which either by themselves or together with other such securities owned by the transferor and any unquoted shares so owned gave the transferor control of the company immediately before the transfer;
(bb)	any unquoted shares in a company …
(3)	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 or shares, land or buildings, or making or holding investments.” (emphasis added)
9.	The appeal turns on the correct interpretation of the emphasised words, as applied to the facts in this case.  For ease of presentation, to describe activities falling either side of the statutory line, I shall use (as convenient, if inelegant, epithets) the terms: “investment” and “non-investment”.
The issue in the case
10.	The area of dispute is very narrow. Starting from the wording of section 105(3) three points seem clear (and, I think, are undisputed):
i)	The business did not consist of, or include, “dealing in… land or buildings”, or “making… investments”; 
ii)	It did include “holding investments”, insofar as it involved holding land for the purpose of receiving licence fees for stationing mobile homes and for caravan storage; but
iii)	It was not “wholly” that of holding investments, insofar as it undoubtedly included some other activities carried on for profit (such as the sale of caravans, and running the club).
11.	The question, therefore, is whether the business was “mainly” that of holding investments. For this purpose, the principal areas of debate have been: first, the correct allocation between “investment” and “non-investment” of the various activities involved in operating the site, including, in particular, the services provided for the residential park; and, secondly, in the light of that allocation, whether the “investment” element of the business was predominant.
Authorities
12.	Although it is common ground that the exploitation of a proprietary interest in land for profit is in principle an “investment” activity, I would agree respectfully with the Commissioner’s comment as to the wide “spectrum” involved; and with his view that cases relating to different taxes and different subject matter are unlikely to be helpful. He said:
“It is not in dispute that the Company carries on a business; the question is whether it is a business consisting mainly of holding or making investments.  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 still 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 trader.  Normally for income tax, leaving aside services for which a separate charge is made, the income must be either income from land or trading profits.  Here the concept of trade is irrelevant and one is required to determine whether the business of the company consists mainly of making or holding investments or some other business.  Although I was referred to a number of income tax cases, I do not find these helpful on this issue.” (para 12)
13.	I would also agree with the Commissioner’s comment on the previous Special Commissioner decisions that they are generally distinguishable, either on the facts, or because the arguments were different. He said:
“The argument that the business of a residential caravan site is mainly the provision of services was not put forward in any of the previous cases before the Special Commissioners, and the attempt to put it forward on appeal in Weston did not succeed.  In Powell [1997] STC (SCD) 181 a long-term caravan business was held to be the business of holding investments but the site was in a run-down state (p184b) and there was no evidence of any business activity beyond the receipt of income from caravan rents (p186j).  In Hall v IRC [1997] STC (SCD) 126 there was a different type of caravan park with the caravans occupied only in the summer (p 128g).  It was assumed that receiving rent from them was the business of holding investments and the decision was that commission on the sale of caravans was ancillary to the main business.  In Furness v IRC [1999] STC (SCD) 232 (in relation to the long-term caravans), and Weston v IRC [2000] STC (SCD) 30 it was assumed that the residential caravan business was that of holding investments and the issue was whether this was the main business, which it was not in Furness and it was in Weston.  Accordingly these cases do not help me in relation to the Appellant’s argument in this case.
Farmer v IRC [1999] STC (SCD) 321 is helpful as it concerned a farm which also had let properties. In deciding that the business was mainly that of farming the business was considered in the round and the fact that the lettings were more profitable than the farm was one factor to be taken into account but not a decisive factor. ” (para 13)
I agree that the last decision (of Dr Brice) is particularly helpful, not least in its emphasis on the need to look at the business “in the round”.
14.	The only one of these cases which came to the High Court (before the present case) was Weston v IRC [2000] STC 1064, in which the Commissioner’s decision was upheld by Lawrence Collins J. With respect to the Judge, the basis of his decision (that the issue was one of fact for the Commissioner) was unremarkable. The present issue, as to the status of the services, had not been raised before the Commissioner, and was not permitted to be raised in the High Court. 
15.	Mr McKay has prayed in aid the Judge’s division of section 105(3) into three questions: 
“(a) Does the company have investments? (b) Is it ‘holding’ investments? (c) Does its business ‘consist wholly or mainly’ of making or ‘holding investments’?”  (para 11)
I do not, however, see how that provides any assistance in the present case, where it is not in dispute that the business was, to some extent, that of “holding investments”.  The answer to the first two questions is therefore inevitable, and the area of dispute relates to the third question. The Revenue also seek some support from one statement by the Judge. Having noted that a person holding an investment may have to take “active steps in connection with it, e.g. a landlord who has to keep property in repair” (para 18), he observed:
“Thus land is generally held as an investment where gain is derived from payment to the owner for use of the property, and so a landlord will normally hold his property as an investment, even if he has to engage in activities of maintenance and management which are required by the lease or are incidental to the letting.” (para 18-19). 
That is entirely fair as a statement related to the facts and arguments in that case. However, I will need to consider in more detail the question as to what is meant by “management”, and the relevance to that question of the requirements of the lease. 
16.	Another recent High Court decision referred to in the present case, by both the Commissioner and the Judge, was Cook v Medway Housing Society [1997] STC 90 (Lightman J). Again, without disrespect, I do not find it necessary to discuss it in detail. It related to a different statutory and factual context, and again the decision (upholding the Commissioner’s finding on the facts) was unsurprising. I note, however, that both the Commissioner and the Judge were influenced by a passage in that judgment:
“The critical question is whether the holding of assets to produce a profitable return is merely incidental to the carrying on of some other business, or is the very business carried on by the taxpayer.” (p 101)
Without questioning that formulation as used by Lightman J. in the case before him, I doubt if he intended to lay down a general statement of principle. If he did, it is open to the criticism that it excludes a third possibility: the case where the holding of investments is neither “merely incidental”, nor “the very business”, but is simply one of a number of principal components of a composite business. 
Management and services
17.	One Special Commissioner decision, Martin v IRC [1995] STC (SCD) 5 (Stephen Oliver QC), requires more detailed discussion. Apart from the respect due to the particular tribunal, this was seen as providing guidance for later cases before the Commissioners. It is also the main foundation for Mr McKay’s arguments in this appeal as to the treatment of services provided by the owners, and the relevance of the terms of the lease or licence.
18.	The case also concerned the availability of business property relief, but in relation to a business of letting industrial units on three-year leases.  It was argued that the landlord’s activity in managing and maintaining the properties was sufficient to take it out of the “investment” category, on the basis that it was “active” rather than purely “passive” property investment.  Mr Oliver rejected that contention. That conclusion is unimpeachable. On any view, the business was at least “mainly” that of holding property for letting, and thus for investment.
19.	The relevance of the case for present purposes is in relation to the treatment of the various activities of the owner. Mr Oliver divided them into three categories:
i)	Those directed at “making” the investment (finding tenants, negotiations over rent, granting leases, taking surrenders and the like);
ii)	“Compliance activities” which the owner had to carry out as landlord (such as keeping the exterior painted and in good repair);
iii)	“Management activities” (such as day-to-day maintenance of the exterior and the common areas, and “policing” the common areas to ensure that tenants complied with the terms of their leases).  
He regarded the first two categories as “clearly activities of or attributable to the making or holding of investments”.  
20.	As to the third he said:
“The purpose of these was to keep the property tidy, secure and in good repair and generally to keep up the standard of the whole investment property.  But they were in no way productive of any income other than rent, nor were they designed to produce any separate income.  This third category of activities covers, in my view, activities that were incidents of the business of holding investments.” (para 22)
His reference to the lack of “any separate income” from those activities should be seen in the context of an earlier passage, where he had recorded, without dissent, the following comment on behalf of the Revenue:-
“Had there been activities of producing income distinct from the rents, such as fees for cleaning or security services provided quite separately from the landlord’s obligations, those would not have been part of the investment holding activities and might have tipped the balance in determining whether the business in question consisted wholly or mainly of the making of holding of investments.” (para 19)
21.	He concluded:
“Thus, active though Mrs Moore’s business was, none of the activities that had anything to do with the property were concerned with anything other than the making or holding of investments. The property is therefore excluded from ranking as qualifying business property by the words of exclusion in section 105(3).” (para 23)
22.	In making that analysis, Mr Oliver QC relied (as does Mr McKay before us) on observations of Slesser LJ in the Court of Appeal in Fry v Salisbury House Estate Ltd [1930] 1KB 304, 331 (a case better known for the House of Lords decision, reported at [1930] AC 432). In Fry, the company managed a block of buildings, in which the rooms were let out as unfurnished offices.  The statutory context was quite different, concerning the distinction under the income tax law as it then stood, between Schedule A (annual value of property) and Schedule D case 1 (trading profits).  The question was to what extent the profits of the business were to be treated as covered by the assessment under Schedule A, or could be subject to separate assessment as profits of a trade under Schedule D. 
23.	The company had in fact admitted liability under Schedule D in respect of profits from services such as lighting, cleaning and care-taking; so no issue on those matters arose for decision. However, the following comments were made by Slesser LJ (p 331-2):-
“…It is important to distinguish between those mere incidents of an ordinary tenancy, such as provisions as to the keys and porters, and those additions to the tenancy…whereby the landlord was able to, and did in fact, earn certain profits from the tenants with regard to charges for cleaning, lighting and heating.  As regards these further matters, which are not normally incidental to a tenancy, they are clearly severable from it and in no sense alter the legal relation of landlord and tenant.”
Having noted that under the terms of the tenancies the additional services, such as lighting of fires and cleaning, were optional, he continued:-
“Now it is argued by the Attorney-General…that because that limited purpose of carrying on a trade is in some way necessarily connected with a pre-existing tenancy, therefore the whole undertaking of the company is in the nature of a trade.  I am unable to accept that view. In so far as there is a trade of lighting and heating, and cleaning, it is a separate matter; it need not be done at all.  And we come back to the position that when the matter is properly examined in all its aspects, we have here the ordinary relationship of landlord and tenant…” 
24.	Commenting on that passage in the Martin case, Mr Oliver said:-
“The income attributed to the rent was taxable as such: the income arising from the latter class of activities, eg cleaning, heating, and lighting provided for a separate fee came from a separate source and was potentially taxable as trading income.  The distinction is I think equally applicable here.  The activities which a landlord carries out because he is obliged to under the lease are incidents of the tenancy and so fall on the ‘holding investments’ side of the equation.  The business activities, if any, carried out by the landlord for gain and which are not required by the lease fall on the other side of the equation.  The activities carried on by the landlord which are not required under the lease and for which he receives no separate consideration will fall on the ‘holding investments’ side of the equation if they are connected with and incidental to the holding of the property as an investment.” (para 21, emphasis added)
25.	I have underlined the passages most material to the argument in the present case. They were applied by another Special Commissioner, Mr Everett, when holding that a caravan park did not qualify for relief (Powell v IRC [1997] STC (SCD) 181).  In that case the owner carried out the ordinary maintenance and security work of the caravan park, including such activities as grass cutting and painting and cleaning site vans, and helping when the electricity or gas supply broke down.  The Commissioner, having cited the passage to which I have referred from Martin, said: 
“Most of the activities which she carried out were either required under the terms of the lettings or pursuant to the terms of the caravan licence which governed the lettings….” 
26.	As I have said, I have no doubt as to the correctness of the Martin decision on its own facts. Similarly, as the present Commissioner said (see above), the actual decision in Powell is readily understandable on the facts, in view of the run-down condition of the park and the “low intensity” of the managers’ activity (although that was not the basis of Mr Everett’s decision: p 187c-d).  
27.	However, I would make two comments of relevance to the present case.  First, I agree in general terms that property “management” is part of the business of “holding” property as an investment (cf Webb v Conelee Properties Ltd (1982) 56 TC 149, 157C-E). In the case of a building held for letting, management no doubt includes the activity of finding tenants and arranging leases or licences, and that of maintaining the property as an investment. But I would not extend that term to additional services or facilities provided to the occupants (such as those referred to by Slesser LJ), whether or not they are included in the lease and covered by the rent. In the case of a building for letting, it is unlikely to be material. They will not be enough to prevent the business remaining “mainly” that of holding the property as an investment. 
28.	Where it does matter, in my view, the characterisation of such services depends on the nature and purpose of the activity, not on the terms of the lease (or, where relevant, a site licence). It is true that, in Fry, Slesser LJ noted the fact that the particular services mentioned (cleaning, heating and lighting) were optional under the lease, and that a separate charge was made. That was treated as a reason for not regarding them as “mere incidents” of the tenancy. However, the converse does not follow. There is nothing in that judgment to support the view that, merely because services or facilities are required by the lease, and their cost is included in the rent, they lose their character as services, and become part of the “holding” of the investment. 
29.	Indeed, so to hold would be contrary to other authority. We were referred to Shop Investments Ltd v Sweet [1940] 23TC 38, a judgment of Wrottesley J, which was treated as “manifestly correct” by Lord Greene MR in Croft v Sywell Aerodrome [1941] 24TC 126, 143.  That again concerned the distinction between Schedule D and Schedule A on rather unusual facts.  The appellant company had granted a lease of a cinema, together with fittings, furnishings and plant, but they were not represented by any separate consideration.  It was held that the Schedule A assessment should be treated as covering that part of the rent which was properly attributable to the building, and that there should be a separate Schedule D assessment in respect of so much of the rent as was shown to be attributable to furniture and fittings.  The fact that they were included in the lease, and covered by the rent, was not determinative of their character for income tax purposes.
30.	Secondly, in any event, caution is needed in drawing a direct analogy between the letting of built units and the licensing of plots in a caravan park. In the former case, the “investment” includes the whole of the site and building, including the occupied units. In the latter, it does not; the “investment” consists solely of the site, and the occupiers provide their own accommodation. In that sense a caravan park is a hybrid. This makes it more difficult to draw a clear line between “investment” and “non-investment” activities. For example, maintenance of the amenity areas of the park is in part designed to maintain the investment, but it is also part of the service provided to the residential occupiers for the enjoyment of their own homes. Normally, it is unnecessary to attempt a precise division between the two functions, but where figures are in issue some form of apportionment may need to be attempted (as in Shop Investments, see above). 
The Company’s business – constituent activities
31.	Against that background, I turn to a more detailed description of the facts of the present case. The Commissioner, by way of summary of Mrs Purcell’s evidence, referred to eight “activities” carried on by the Company:
i)	 The residential homes park.  At the time of the deceased’s death this consisted of 167 mobile homes.  The caravans were owned by the residents. The Company made a profit from the sale of caravans, and also took a commission of 10 per cent on sales of caravans on the site. I shall return to his description of this part of the business in more detail, since it forms the main area of dispute.
ii)	Dunton Park Country Club.  This was a club, comprising a bar open every evening. and a suite available for hire for private functions.  Membership was available for a fee to residents and non-residents of the site. It is common ground that this activity was non-investment.
iii)	Caravan storage.  There is an area for storage of touring caravans when not in use.  Agreements for storage were for fixed periods of six months or a year and related to a specific plot. At the time of the deceased’s death there were 443 caravans stored there.  The Commissioner found that this business was investment (principally because of the long-term nature of the agreements, and the limited support services required from the Company).
iv)	The administration office. Although listed as a separate “activity”, the office was used, as one would expect, for employees in connection with the various parts of the business. The Commissioner made findings as to the allocation of their time.
v)	Warehouse and shop.  These were let separately, and the rent was treated by the Commissioner as investment income.
vi)	Fields.  These were let on grazing licences to a farmer, and again the receipts were treated as investment income.
vii)	Insurance.  The Company had an insurance agency and received commission on insurance sold to residents and owners of caravans stored on the site. This was held to be non-investment income.
viii)	Interest.  The Company also received interest on cash balances. Since the cash arose from all the Company’s activities, and “obtaining interest is not a business in itself”, this also was held to be non-investment income.
32.	It is apparent from this description that the division into eight “activities” is somewhat artificial. Indeed, when the Commissioner came to his conclusions, he adopted a slightly different division (derived, it seems, from the evidence of the Company’s accountant, Mr Loochin):
i)	The residential homes park – the main area of dispute (see below).  
ii)	Gas, electricity and water – also disputed (see below). 
iii)		Caravan sales and commissions – non-investment. 
iv)	Caravan storage – investment (see above). 
v)	The club – non-investment (see above). 
vi)	Other income - letting of the warehouse and grazing (investment); insurance commissions (non-investment); and interest on cash holdings (non-investment).  
33.	Looking at the matter more generally, the main components of the business were, as I have said, the residential caravan park (with the associated services, and caravan sales), the club, and the caravan storage. In deciding on the nature of the business “in the round”, it is realistic to concentrate on these elements. Indeed, it is possible to narrow the area of dispute still further.  On the one hand, it is common ground that the club was properly treated as non-investment.  On the other, it is difficult to see any basis for challenging the Commissioner’s conclusion that the caravan storage part of the business, looked at on its own, was investment.  Mr Herbert did not concede the point, but realistically did not press it very strongly, no doubt recognising the obstacle of Edwards v Bairstow, which was very important to his own argument on other issues.  
34.	Accordingly, in the way the case was presented, it was the treatment of the residential homes park (including its utility services) which became the central issue.  
The residential homes park
35.	The services provided for the residential homes park were described as follows, on the basis of a summary of Mrs Purcell’s evidence:
“The residents receive connections to sewerage, water, electricity and, if required, calor gas which is supplied either by bottled gas or by the hire of mini gas tanks. The company arranges bulk supply of electricity and calor gas for resale to residents.  All electrical installations on the site after the powerhouse to which the mains electricity supply is made belong to, and are maintained by, the Company.  The company reads each resident’s electricity meter monthly and invoices residents.  The Company recovers the cost of electricity for street lights and the office and club in the charge it makes for electricity to the residents.  The Company stores gas bottles for supply to residents and invoices residents for deliveries to the gas tanks hired by the Company to residents.  It makes a profit on the supply of electricity and gas to residents.  Water is supplied to residents at a fixed charge and is paid for by the Company on a metered basis, on which the company makes a profit.  The common parts are lighted, the roads are maintained, there is an emergency telephone, fire hydrants, and a visitors’ car park.  Rubbish is collected weekly and three large skips for garden rubbish are provided for residents and emptied weekly.  Residents can use the general store/newsagent which is let at a concessionary rent and not operated by the Company.  Residents pay their own general rates and make their own arrangements for telephones.  There are car parking spaces and garages available for hire.  There is a full-time site manager.”
36.	That summary does not fully explain the different ways in which the various services were supplied to the homes and paid for. More detail was given in Mrs Purcell’s written evidence:
i)	Calor Gas could be obtained by residents, either in the form of bottles supplied for payment from a secure compound on the premises; or from mini-tanks hired individually, and installed by the Company for a fee. The tank hire fee was “collected with the site fees”. 
ii)	Electricity was supplied from the company’s own powerhouse on site, maintained under a contract with Eastern Electricity, for which a single charge was paid. Supplies from the powerhouse to individual homes were metered and invoiced separately. 
iii)	Water supplies to individual homes were not metered separately, but subject to a weekly fixed charge, which was “part of the site fee”.
In each case, the fees charged to residents included a margin over the cost to the Company, and the profit for the year from these services was substantial (see the figures below).  By contrast, the removal of refuse, which was organised by the Company on a weekly basis, was not charged separately from the site fee, and was not regarded as producing a profit in its own right.
37.	The residential caravan park was operated under a site licence granted in 1981, under the Caravan Sites and Control of Development Act 1960. It laid down detailed conditions covering such things as density, maintenance of roads and footpaths, water supply, drainage and electrical installations. Each plot was held under an agreement in standard form, complying with the Mobile Homes Act 1983.  The occupier was given the right to station and occupy a mobile home on a particular plot (subject to the owner’s right to move it for essential works); and to have the right to use communal and recreational facilities for family and guests. The licence fee was subject to annual review, having regard to the Retail Price Index, and other relevant factors, including “sums expended by the owner for the benefit of the occupiers of mobile homes on the park”.
Staff and income
38.	The Commissioner described the staff engaged in the various activities:-
“Apart from Mrs Purcell, the director, there are three full-time staff in the office.  The club has a full-time steward and three part-time bar staff.  There is a site manager, two assistants, three full-time plus one working 30 hours a week, two part-time (one working over 20 hours per week and the other doing odd jobs) maintenance and ground staff, and two cleaning staff, one working 17 hours per week.”
He accepted Mrs Purcell’s breakdown of the activities of the members of staff between the main components of the business. In relation to the residential homes park, he said:
“A considerable amount of staff time relates to this part of the business; Mrs Purcell apportioned to it 48 per cent of one member and 10 per cent of another member of the office staff, 40 per cent of two full-time, 50 per cent of another working 30 hours per week, 50 per cent of another full-time but seasonal, and either 40 or 50 per cent of the three part-time, members of the maintenance staff and, 40 per cent of the site manager and assistant site manager.” 
39.	As to the income generated by the different activities, he gave the following breakdown based on figures provided by the Company’s accountant:-
	Storage	Club	Gas and electricity	Water	Caravan sales & commission	Site fees	Other	Total	
Turnover	81,732	63,463	93,716	21,234	120,977	235,327	17,331	633,780	
Gross profit	81,732	17,663	25,175	10,955	65,463	235,327	17,331	453,646	
Net profit	14,652	-38,425	19,975	5,755	60,263	65,893	17,331	145,444	
40.	The Commissioner also gave in each column a figure for “overheads” (excluding directors’ fees), used in arriving at the figure for gross profits. I need mention only the figure for overheads in the “site fees” column: £169,344. Later in his decision (para 25) the Commissioner gave a detailed breakdown of this figure, and noted that it represented 72% of the site fees. He commented: “the level of expenses points to a non-investment type business”.
The Commissioner’s decision
41.	I shall consider, first, the arguments of the parties, and the Commissioner’s conclusion, relating to the main contentious item (the residential site); and then his overall conclusions. 
42.	The taxpayers’ case was that the only investment elements were the grant of the rights to station mobile homes on particular plots (including access rights), and the physical connections to services. Everything else provided by the company was non-investment. That included, not only the services which produced a profit in their own right (such as supply of gas and electricity); but all the activities involved in running the site, including maintenance of the common parts, lighting, grass-cutting, refuse-removal and so on. 
43.	To demonstrate the split, Mr Loochin assumed that the investment element of the site-fee could be equated with the equivalent site-fee for caravan storage in the other part of the business. On that basis, he calculated, 69% of the site-fee was for “services” or non-investment, and 31% for investment (Decision para 18).
44.	The Revenue’s case before the Commissioner can be summarised as follows:
i)	Investment activity included, not only holding land to produce a return, but also “activities of maintenance and management which are required by the lease or are incidental to the letting”  (Weston v IRC see above). The question in each case was: whether the business is fairly described as one of letting with ancillary activities, or as a business consisting of the provision of services or other trading activities, with the ancillary use or occupation of the land?
ii)	If there is a business of letting land, activities which arise from compliance with the landlord’s covenants under the relevant lease or licence, or which are incidental to the letting, will not alter the nature of the business from one of holding investments.
iii)	Anything done in complying with the site licence is part of the business of exploiting its ownership of the caravan site, and therefore part of the business of making or holding investments.
45.	On that basis, in the Revenue’s submission, all the activities connected with the residential park were to be regarded as investment, including the provision of electricity and water. The only non-investment items in this part of the business, as I understand the Revenue’s case, were the sales of caravans and of calor gas (the latter because residents were free to buy supplies from other sources). 
46.	The Commissioner rejected this part of the Revenue’s case. He did not agree that everything done pursuant to the site licence, or the site agreement, must be part of the investment business. He said:
“It is true that if the site licence is not complied with there will be no business, but it does not determine what type of business it carries on.  One could argue with a hotel that but for the ownership of the land and buildings there would be no hotel but that argument does not lead to the conclusion that running a hotel is the business of holding investments.  The site licence is merely part of the regulatory framework within which the Company operates.  
The same applies with more force to the argument that anything done pursuant to the agreement with the residents must be part of the investment business.  If one contracts for all the services provided by a hotel that does not lead to the conclusion that the business is one of holding investments.  The most one can say is that if there is a business of holding investments matters covered by the agreement with the occupiers may be ancillary to that business.” (para 30)
47.	He concluded on this part of the case:
“Taking all these factors into account, the service element is considerable, as indicated by the level of expenditure, but so is the investment element because the Company is obtaining a return on its considerable investment in the site and the infrastructure. I cannot put a figure on each and would have found it helpful to have a valuation of the pure rent taking into account the infrastructure. But given the figures I have, 72 per cent of the site fees goes in overheads (excluding the director’s fees) most of which relate to the upkeep of the common parts. In my view, the services element predominates. On this aspect the very business of the Company is the provision of services and not the business of holding investments.” (para 31)
Similarly, he held that the supply of gas, electricity and water (treated as a separate activity) was non-investment:
“The issue is not whether the provision of these services enables the company to earn its income.  It is whether this income arises from the business of making or holding investments.  The income arises directly from the purchase and resale for these items at a profit….” (para 33).
48.	Finally, after giving his view on each of the components, the Commissioner expressed his overall view (under the heading “The main business of the Company”):
“On the basis that the caravan storage business plus the rental income are investment activities, in 1998, 14% of the turnover, 20% of the gross profit and 16% of the net profit before the directors’ fees is referable to holding investments.  I have considered the business of the company in the round to see whether, as in Farmer, these figures are outweighed by other factors.  I do not think they are.  The figures give a good reflection of the nature of the business.  I conclude therefore that the business of the Company is not mainly that of making or holding investments.”
The Commissioner’s use of the figures
49.	Before leaving the Commissioner’s decision, I should comment briefly on the way the figures relied on in the last paragraph were arrived at, and their significance.
50.	Following the hearing before us, the parties helpfully agreed a note explaining the derivation of the 14% figure. Starting from the figures for turnover in the table set above, it is based on treating as “investment” the figures for storage (£81,732), and for the letting of the warehouse and the grazing (£9,369, being part of the “other income” figure of £17,331).  The resulting total for investment (£91,101) is 14.37% of the total business turnover (£633,780). It will be seen therefore that, having found that the residential park was to be treated as “non-investment”, he excluded the whole of the turnover for that part of the business from the final calculation. 
51.	Although the compartmentalised approach adopted by the Commissioner appears to have been dictated by the way the matter was presented to him, I have some doubt whether it was necessary or realistic to dissect the business in that way. It is accepted, as I understand it, that it was a single business. It included the holding of land as investment, both for the residential park and for the caravan storage. The ultimate issue was the relative importance of other non-investment activities to the business as a whole, not their relative importance to the individual parts of the business looked at separately. Furthermore, if that is the right approach, it would not be right, in my view, to treat the residential park as purely “non-investment”. On any view, it seems, at least some 30% of the site fee was attributable to investment (Decision para 18, 31 above).
52.	However, the Revenue has sensibly not taken detailed objections of this kind. Such points serve to underline the fact that, as the authorities recognise, trading figures are no more than an imperfect guide to one part of the overall picture.  Even if the final calculation were adjusted by assuming a substantial “investment” contribution from the Residential Park, it would be very unlikely to be sufficient to affect the final balance. Nor would it undermine the Commissioner’s overall conclusion, based on looking at the matter “in the round”.
The judgment below
53.	Laddie J started from the three questions derived from Weston v IRC (see above). He separated the third question into two parts: first, assuming there to be an investment business, what is its scope; secondly, how does it compare with the non-investment activities?  He referred to the passages cited above from Martin v IRC, which he regarded as consistent with the approach of the House of Lords, in the context of different tax legislation, in Governors of Rotunda Hospital v Coman (1920) 7 TC 517. He said:-
“It appears to me that what falls within the investment business “bag” is not only the core holding of the land and the receipt of fees or rent in respect of its use, but also all those activities which, viewed through the eyes of an average businessman, would be regarded as “incidental” to that core activity. As Mr McKay puts it, activities which are incidental to the letting of land are not severable from it and take on the investment character of the letting. Activities which have minor commercial justification by themselves are likely to be regarded as part of the business which they support. Thus where it would appear to a businessman that a particular activity was engaged in primarily to support some other business activity, it is to be treated as part of the latter activity. The extent to which such a subsidiary activity makes a profit will be some indication of whether it is a stand-alone business or should be regarded as merely incidental to the business it supports. Put another way, an activity which is incidental to, say, an investment business does not cease to be so because the landlord decides to make an additional profit on it.” (para 13, emphasis added)
54.	Laddie J accepted Mr McKay’s submission as to the error of approach made by Dr Avery Jones which he summarised as follows:
“Mr McKay argues that the Special Commissioner, Dr John F Avery Jones, instead of approaching this case in the sequence suggested above based on Weston, jumped straight to Cook v Medway. He says that Dr Avery Jones assumed that holding land to produce a profitable return on it is capable of being incidental to the provision of services on the land. What he should have done was to recognise that here the land was held as an investment. After that he would have been in a position to assess not only which, if any, of the other activities carried on by the company were incidental to the investment business, but also whether the latter was ‘the very business’ carried on by the company.” (para 15)
The Judge went on to apply what he called the “Weston” approach to the facts.  He said:
“The business of receiving site fees from each of the mobile home owners for the right to place their vehicles on the Company’s land (ie residential homes park facility) and the receipt of fees for allowing others to store mobile homes (ie the caravan storage facility) constitute exploitation of the Company’s proprietary rights in its land. They constitute the business of holding an investment. Furthermore all of the services, such as the supply of water, electricity, gas, even though profitable in their own right, were ancillary to that investment business…..” (para 18)
From that he concluded that the holding of investments was “the very business” of the company.  Of the four major activities carried on by the company, only the operation of the country club and the caravan sales were not investment businesses.  
The Revenue’s case in this Court
55.	In this Court, Mr McKay for the Revenue in fact puts his case somewhat differently from the basis on which the Judge decided in his favour.  He adopts the three-stage approach suggested by Lawrence Collins J in Weston v IRC (above, at p175). However, as I have said the real area of dispute relates to the third question. On that, Mr McKay raises in substance two issues of law:-
i)	What activities are to be regarded as “ancillary” to the holding of property as such, and therefore as parts of the investment activity?
ii)	Does it make any difference whether those activities are requirements either of (a) the agreements for the individual plots or (b) the site licence?
56.	On the first, he submits that the Commissioner wrongly based his conclusions on a quantitative assessment of the levels of the various activities making up the business rather than -
“a qualitative assessment of the nature of the activities in question in particular as to the relationship with that element of the business by which the company held land to produce  a profitable return.”
57.	As to the second, he says that both the Commissioner and the Judge were wrong not to attach any importance to the terms of the agreement and the site-licence. Indeed, on this point he disagrees with the Judge. The issue is not what the “average businessman” would think; but whether the services were provided pursuant to the terms of the lease or licence, and whether or not for an additional charge.  
Conclusion
58.	For the reasons already given, I am unable to accept Mr McKay’s reliance on the terms of the lease or licence as definitive in the case of a caravan park.  On the other hand, I think, with respect to the Judge, that he placed too much reliance on the particular formulations used in Cook and Weston, instead of concentrating on the language of the statute.  As I have said, the most important point about each of those decisions is that the Court was upholding the decision of the fact-finding tribunal.  
59.	In the present case the Judge was being asked by the Revenue to find some error of law in the approach of the Commissioner.  The error identified by Mr McKay, as accepted by the Judge (para 15, cited above) was, in Mr McKay’s words, that instead of following the sequence based on Weston, he “jumped straight to Cook v Medway”.  As I understand it, the Judge intended that as another way of putting his point that the first step was to decide what activities were in “the investment bag”; or, in Mr McKay’s terms “recognising that the land was held as an investment”, and then assessing which of the other activities were “incidental to the investment business”.  
60.	For the reasons I have given, I think that was the wrong approach. The section does not require the opening of an investment “bag”, into which are placed all the activities linked to the caravan park, including even the supply of water, electricity, and gas, simply on the basis that they are “ancillary” to that investment business. Nor is it necessary to determine whether or not investment is “the very business” of the Company. The statutory language does not require such a definitive categorisation. In the present context, it gives insufficient weight to the hybrid nature of a caravan site business, as I have explained.  The holding of property as investment was only one component of the business, and on the findings of the Commissioner it was not the main component.  In my view, the Commissioner’s overall approach was correct in law, and he reached a view which was open to him on the facts. 
61.	I would add that I am happy to be able to arrive at this conclusion. I find it difficult to see any reason why an active family business of this kind should be excluded from business property relief, merely because a necessary component of its profit-making activity is the use of land.  
62.	For these reasons, I would allow the appeal, and restore the decision of the Special Commissioner.
Lady Justice Hale
63.	I agree.  This was essentially a question of fact for the Special Commissioner who asked himself the questions which the statute requires him to ask.  It is usually unfortunate to try to gloss clear statutory language with additional judicial tests.  The Special Commissioners are the experts here, and appeal to the High Court is on a point of law only.  The Court should resist any attempt to dress up a question of fact as if it involved a question of law.  

Order:  Appeal allowed as per Counsel’s agreed Minute of Order