In recent years, HMRC have had a succession of victories against the taxpayer in claiming that furnished holiday letting (FHL) businesses do not qualify for business property relief (BPR) for inheritance tax purposes. However, earlier this year there was finally a win for the taxpayer!
BPR provides for 100% relief from inheritance tax on a business, subject to satisfying certain conditions. One exclusion to claiming BPR is where the business mainly deals in holding investments rather than trading.
In previous cases, HMRC has successfully argued that the FHL’s in question were mainly investment businesses. In the case of PRs of Graham (Deceased) v HMRC, however, the judge determined that extensive services were carried out by the appellant.
The business consisted of four holiday cottages/self-contained flats. The services included a personal greeting and assistance as required as well as provision of a welcome pack, arrival refreshments, heated swimming pool, games room, access to the garden for seasonal produce and barbecues.
In the round, the judge determined that this was an exceptional case which just fell on the non-investment side of the line. This was largely due to the personal care and package of services provided, over and above what you would expect from a ’normal’ holiday letting business.
Although a positive result for the taxpayer, this case demonstrates that there must be a significant level of activity for any prospect of a BPR claim to be accepted. Subject to appeal by HMRC, however, this does provide us with a glimmer of hope for future BPR claims on actively managed holiday lets.