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Business Property Relief And Furnished Holiday Lettings

A quick look at HMRC vs Ross ...



In my recent blog post, A Brief Guide to Furnished Holiday Lettings, I advised you that it's unlikely that an FHL business will qualify for Business Property Relief (BPR) for Inheritance Tax (IHT) purposes ...

Hotel or furnished holiday let? Business Property Relief may or may not be available to you!

Hotel or furnished holiday let? Business Property Relief may or may not be available to you!

copyright: kadmy / 123rf stock photo

The BPR legislation excludes businesses which consist 'wholly or mainly of the making or holding of investments'. One of the key factors as to whether a property qualifies for the relief has been the level of services you provide.

When looking at something like a hotel, it is clear that the level of services provided will mean that it would be classed as a trade, but what about Furnished Holiday Lettings?

There was a recent judgement in HMRC vs Ross in regard to FHLs. Based on prior rulings that found in favour of HMRC, the tribunal held the view that the services provided were not of a level that would amount to a trade.

The Facts

Mrs Ross' estate contained a share of the Green Door Cottages Partnership. Her daughter had managed the partnership for many years. The partnership owned eight holiday cottages and two staff flats in Cornwall, as well as a house in Weymouth.

All eight of the cottages, and the property in Weymouth, were rented out. One staff flat was used by the employee handyman, whilst the other was on a long lease to the hotel across the road.

Mrs Ross and her husband had previously owned the hotel, and ran the cottages in conjunction with that business, until Mrs Ross became ill, at which time the hotel was sold.

Arrangements were made with the hotel so that it continued to provide services to the cottage guests. For example, guests could have meals in the hotel, cleaning, concierge access, parking, babysitters, on-site handyman and laundry facilities.

The total value of the properties combined was £1.5 million. The executors claimed BPR relief on Mrs Ross' share in the partnership.

The Case

The case put forth by the taxpayer was fairly comprehensive and included testimonials from guests and staff, a breakdown of time spent on the day-to-day running of the partnership, and an allocation of expenses in relation to the services provided.

They argued that the partnership provided extensive services and a 'holiday experience'. One former guest likened the experience to "checking into a hotel with the ability to self-cater". While they were clear that the partnership was not providing a hotel-like service, they argued that what they did provide were more than ancillary to just the provision of land.

HMRC accepted that the level of services provided by the partnership was extensive, but not enough to make it a trade. Therefore the primary activity remained the exploitation of land for rent.

The Decision

The tribunal found in favour of HMRC and held that Business Property Relief should be denied. This decision was made based on principals established in previous cases regarding the level of services.

It was found that the partnership did not provide the level of services necessary to successfully challenge the default position that a business, whose principal activity involved deriving income from the occupation of land, was mainly one of investment.

And Finally

This case is a further setback for property investors. Whilst in some situations it may be possible to provide even more services to ensure that the business qualifies for BPR, this case demonstrates that the 'trading activity' hurdle is a difficult one to cross.

If you are in this situation, it may be advisable to consider other estate planning options, in case BPR is not available.

"Would you like to know more?"

If you'd like to review your own tax position and to see if Business Property Relief is available to you, do call me on 01908 774323 or click here to ping me an email and let's see how I can help you.

Until next time ...


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More about Helen Beaumont ...

Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.

Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.

When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.