In a recent tax case, the Personal Representatives of Grace Joyce Graham (deceased) v HMRC  TC06536, it was held that inheritance tax business property relief was available on furnished holiday lettings.
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’.
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  UKUT 050, Green v Revenue and Customs  UKFTT 334 (TC) and the Executors of the Estate of Marjorie Ross (Deceased) v Revenue and Customs  UKFTT 507 (TC).
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.
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.
If you client runs a FHL and provides an exceptional amount of services in doing so you may get BPR.
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