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4 October 2018 | Comment | Article by Eleanor Evans TEP

Business property relief and holiday lettings


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.

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Author bio

Eleanor is Head of the Trusts and Estates Administration Department, a large team dealing with estates and trusts administration on behalf of financial institution and trust corporation clients.  Eleanor is a specialist in wills, probate, tax and trusts, and is a full member of STEP (the Society of Trusts and Estates Practitioners).  She is also a committee member of the STEP Wales branch.

Disclaimer: The information on the Hugh James website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. If you would like to ensure the commentary reflects current legislation, case law or best practice, please contact the blog author.

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