Holiday homes and inheritance tax: Do you qualify for Business Property Relief?

In recent years there have been a large amount of cases involving claims for inheritance tax relief on holiday homes (often referred to as Furnished Holiday Lettings).

This is where a holiday home owner dies and their executors claim relief from inheritance tax for the value of the holiday home on the basis that it was being run as a business.

In almost every case heard recently HM Revenue & Customs (HMRC) have been the ultimate winners and this has lead many into thinking that the relief from inheritance tax, known as Business Property Relief (or BPR), cannot be claimed for holiday homes. However, a recent case may suggest otherwise.

A successful Business Property Relief case?

A very recent case which was brought to the First Tier Tribunal (FTT) in April 2018 went in favour of the taxpayer. It related to a property in the Isle of Scilly which was owned by a Mrs Graham and upon her death, inherited by her daughter Louise Graham. A business was operated from “Carnwethers” (as it was called) which was an enlarged farmhouse with 4 contained self-catering flats.

The Graham’s ran their business providing services such as welcome packs, a solar heated pool and sauna, and supplies such as tea and coffee. For an additional cost guests could hire the electric golf buggy, rent bikes and in addition, Louise Graham went out of her way to make guests welcome by assisting with emergencies in the middle of the night, catching crabs and fish which guests could purchase and organising events.

HMRC contested the claim for BPR on the basis that it mainly consisted in the holding of an investment. During the case, the FTT looked at each individual part of the services provided to guests to conclude if they were looking at something which was mainly a business operation or an investment operation.

Comparisons were made with previous cases where the claim for tax relief was ultimately rejected, as the services provided in these cases were not deemed substantial enough to make them business operations.

In this most recent case however, the FTT concluded that the services provided “…was an exceptional case which does, just, fall on the non-mainly-investment side of the line…” Graham v HMRC [2018] UKFTT 306 (TC).

A row of colourful houses on a street.

This is the first tax tribunal case in some time where the taxpayer has been successful in claiming Business Property Relief on a Furnished Holiday Letting business. It highlights the tax relief.

It should be noted however that because this is a First Tier Tribunal decision, HMRC can still appeal and take the decision to the Upper Tier Tribunal. First Tier Tribunal decisions are also not binding in law.

If you are engaged in holiday home lettings and wish to understand the potential for you to claim inheritance tax relief then we strongly suggest that you take professional tax advice. At Price Bailey, we are happy to help you in this area, and in considering your exposure to inheritance tax generally.

This post was produced by Michael Morter at Price Bailey. To contact Michael about any of the points raised in the article above, feel free to get in touch using the form further below.

[Article updated accordingly on January 28 2024.] 

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.


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