Business Property Relief on Furnished Holiday Lettings

Business Property Relief

In a recent tax case, the Personal Representatives of Grace Joyce Graham (deceased) v HMRC [2018] TC06536, it was held that inheritance tax business property relief was available on furnished holiday lettings.

Business property relief (BPR) IHTA 1984 S103 to 114

Business property relief is available on the value of transfers of business property (in the UK or elsewhere), providing certain conditions as to the length of ownership and type of business are satisfied. The relief is given at 100% and 50% dependant on the assets. There is an exclusion from BPR (subject to certain limited exceptions) if the business consists wholly or mainly of (among other things) ‘making or holding investments’ IHTA 1984 S105(3). There is no statutory definition of “holding investments’.

Furnished Holiday Lets (FHL)

HMRC will always oppose BPR claims on FHL claiming that they are an investment business. In fact HMRC infers that FHL will normally not qualify for BPR see: https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm25278 . There are a few cases where it has been decided that the relief is not due Lockyer and Robertson (Personal representatives of Pawson) v Revenue and Customs [2013] UKUT 050, Green v Revenue and Customs [2015] UKFTT 334 (TC) and the Executors of the Estate of Marjorie Ross (Deceased) v Revenue and Customs [2017] UKFTT 507 (TC).

The Case

Mrs Grace business was on the Isles of Scilly and included four self-contained self-catering flats or cottages which were part of the farmhouse where she lived.

• Mrs Graham and her husband had renovated the properties in the 1970’s and run a B&B, a hotel and then FHL’s accommodation from the property. Mr Graham died in 2007 and their daughter began to help with the running of the business.
• Leisure facilities were provided such as a swimming pool, sauna, games room, croquet lawn, bicycles for hire, and a barbeque area, as well as a laundry room.
• On arrival a welcome pack and basic supplies were provided in the flats/cottages, guests were given refreshments, and they were told to help themselves to produce from the gardens such as herbs and tomatoes.
• Mrs Graham’s daughter made but a lot of effort to help and advice guests. Sometimes she had been called upon for emergencies in the middle of the night and provided a taxi service to rescue guests lost on the island.
• In season the pool was skimmed twice a day with other cleaning of facilities and gardening taking place on daily and weekly rotas adding up to about 200 hours per week including changeovers.
• On Mrs Graham’s death her personal representatives (PR’s) made a claim for BPR in respect of the business. HMRC said that whilst she had been operating a business it was one mainly in the holding of an investment.

The personal representatives appealed, and the First Tier Tribunal allowed the appeal.

Overall the judge concluded that this was an exceptional case which does, just, fall on the non-mainly-investment side of the line. The pool, the sauna, the bikes, and 5 the personal care lavished upon guests by Mr’s Grahams daughter distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would in our view regard it as more like a family run hotel than a second home let out in the holidays. We conclude that the business was not one which consisted wholly or mainly of holding investments, and therefore allow the appeal.

Conclusion

If you client runs a FHL and provides an exceptional amount of services in doing so you may get BPR.