HMRC win defeats claims for inheritance tax relief on furnished holiday lettings

Taxpayers whose appeal against refusal of inheritance tax (IHT) business property relief (BPR) for a single property furnished holiday letting business have lost their last chance to take the matter further.

The Court of Appeal has refused  the executors of the late Mrs. Pawson leave to appeal against the decision of the Upper Tier Tribunal that:

  • FHLs do not automatically qualify for BPR; and
  • BPR can only apply if there are enough added value services for it to be said that the business is preponderantly the provision of services and not mainly managing the property concerned as an investment.

Normal maintenance services such as cleaning, maintenance, advertising and marketing are not services to be taken into account when deciding if the FHL is a business. They are not services provided to the users of the property, rather they are expenses the owner incurs in maintaining and managing the property.

This means that the UTT’s decision stands as a binding precedent. Letting furnished holiday property is a business but, unless enough other services are provided to the users of the property, so that the business does not consist mainly of holding and managing investment property, BPR will not be available.

This decision effectively aligns FHLs with caravan parks and serviced business accommodation. To obtain BPR the services supplied need to go far enough beyond mere marketing, servicing and maintenance of the property.

BPR may still be available in the right circumstances, usually for actively managed holiday lettings where there are sufficient additional services to add value to the guest’s experience of using the accommodation, e.g. where the holiday let more broadly mirrors the sorts of services offered by B&Bs or hotels or activities form part of the package on offer.