Potential changes to Business Property Relief availability for Holiday Property Lettings
09 | 02 | 12
Business Property Relief (BPR)
applies to ‘relevant business property’ and acts to reduce the
value of a property by up to 100%, for inheritance tax purposes.
Therefore, Business Property Relief (BPR) may allow you to pass on
some of your business free of tax, either during your lifetime or
as part of your will.
There are a number of requirements
that must be met before BPR can apply. The two key ones are:
- The property must be a ‘relevant
business property’ – this does not include business, carried out at
the property, which has no financial gain
- The transferor must have owned the
relevant business property for the period of two years prior to the
transfer.
The decision in the case of
Nicolette Vivian Pawson (Deceased) v Commissioners for
HMRC, which took place in November 2011, may have a direct
affect on holiday property lettings’ potential to qualify for BPR.
The decision reached in this case put forward that a holiday
property let can qualify as a relevant business property and that
it will not necessarily be viewed as merely an investment.
Currently, Section 105(3) of the Inheritance Tax Act (IHTA) 1984
states that if a business consists wholly or mainly of holding
investments, it will be excluded from BPR.
The outcome of the case decided
that an intelligent businessman would not consider the ownership of
a holiday letting as an investment as it is too active a project to
be considered as such.
The First-Tier Tribunal held that
the letting of Mrs Pawson’s rental cottage amounted to a business
for two years prior to the death of Mrs Pawson. The letting to
holidaymakers was classed as ‘a serious undertaking earnestly
pursued’ stated Richard Barlow, Tribunal Judge. They also ruled
that the business, although not always profitable, had been run
with the purpose of achieving a gain and as such was not excluded
from BPR by the provisions in s103(3) of the IHTA 1984.
This decision goes against the
previous view of HM Revenue and Customs and according to Andrew
Arnott of Saffery Champness “is of significant interest to
landowners, farmers and indeed anyone letting a holiday
property." It is thought that HMRC had a number of similar
cases that they were holding back pending the outcome of this case.
We will now have to wait, with interest, to see how or if they
proceed with these cases.