Business property relief can reduce the amount of inheritance tax payable for estates where the deceased owned a business. Historically, HM Revenue and Customs (HMRC) has been reluctant to allow holiday lettings businesses to qualify for business property relief, on the basis that they are businesses that consist wholly or mainly of holding investments, so are not entitled to relief under section 105(3) Inheritance Tax Act 1984.
The recent case of The Personal Representatives of Grace Joyce Graham v HMRC [2018] UKFTT 0306 (TC) is a good example of an unusual case where HMRC will allow the relief.
The facts in the Graham case
HMRC had originally refused business property relief on the basis that Mrs Graham’s business, Carnwethers, consisted mainly of the holding of an investment. Her personal representatives appealed this decision.
The business consisted of four self-contained flats, with well-maintained gardens, a swimming pool, games room, sauna, laundry room and barbecue area. Guests could hire a golf buggy and bicycles. There was a guest lounge with an open fire, books and leaflets relating to local attractions. Guests were welcomed with refreshments and a “welcome pack”, and provided with bed linen and towels. The family made themselves available to guests, providing advice about local activities and occasionally a taxi service. Significant work was undertaken by the family to maintain and clean the accommodation and shared areas.
The tribunal considered previous cases relating to holiday lettings, to include HMRC v George [2004] STC 147, in which the judgment described a “spectrum” of holiday accommodation, stretching from a luxury hotel to a property let out with little input from its owners.
The judgment in the George case also referred to the necessity to consider a business in the round. The fact a business carries out both investment and non-investment activities will not necessarily mean that it is an investment business.
Why was business property relief allowed?
The tribunal concluded that Carnwethers was an exceptional case, which was just on the non-investment side of the line. The extent of the additional services and assistance provided by the family meant that an intelligent businessman would consider it as a business that was more like a hotel than a standard holiday let.
