Business Property Relief update on furnished holiday lets
4 September 2018
The availability of business property relief from inheritance tax on furnished holiday lets has become a well-worn battleground between HMRC and the taxpayer since the decision in HMRC v George in 2004. It is the rise in popularity of the furnished holiday letting with the introduction of Airbnb and other internet based marketing platforms which has kept this issue in the spotlight rather than any discernible shift in HMRCs attitude or change in the law.
It remains the case that trading services provided in addition to the passive investment activity of letting property must significantly outweigh the investment element for the property to attracts BPR.
The latest case, The Executors of Grace Joyce Graham v HMRC despite being decided in favour of the taxpayer this time, adds nothing new and simply reinforces how far you have to go before HMRC will entertain the notion that your activities tip the balance in favour of BPR.
In this case, the owners had provided guests with extensive leisure facilities including a swimming pool, sauna, games room, bike hire, croquet lawn and barbecue area. In addition, the owner’s daughter acted as a taxi service for guests, and provided extensive advice and assistance on holiday activities as well as welcome baskets. Guests were also encouraged to pick and consume fruit and vegetables grown on the property. The services provided were more akin to those guests might find offered at a country house hotel rather than standard additions to a holiday let. Despite the exceptional nature of the services provided the property only just fell on the mainly-non-investment side of the line and this decision should certainly not be construed as likely to herald a relaxation in HMRCs stance in future cases.
Though BPR should certainly not be taken for granted and is the exception rather than the norm, there are other fiscal attractions to FHLs:
- Income earned from FHLs counts as earnings in calculating the maximum pensions contributions that can be paid into a registered scheme ;
- Unlike normal rental properties, capital allowances are available on furniture and fittings; and
- Capital gains tax reliefs such as hold-over relief, rollover relief and entrepreneur’s relief may well be available on disposals so the position is not irretrievable even if your investment has not achieved the IHT benefits you hoped it would have.