14 August 2013

Last year we reported on the decision of the First Tier Tax Tribunal to allow a claim for Business Property Relief for IHT on a holiday cottage on the Suffolk coast, in which the deceased, Mrs Pawson had a share.

It has long been the position that claims for BPR on furnished holiday lets are possible provided sufficient additional services are offered to move the business from simply one of investment activity (where no BPR is available) into that of being a trading business (on which BPR is available).  The debate with HMRC normally focusses on the level of those additional services and whether they are sufficient to move the business away from the investment end of the spectrum into the trading end.

The surprising thing in the first decision in Pawson was how few additional services were offered.  The case report suggests that the owner provided cleaning and gardening services as well as TV and telephone.  However, most of those would be categorised as the bare minimum for a holiday cottage. 

Therefore it was no great surprise to discover a few weeks ago that the Upper Tribunal had considered HMRC's appeal and decided that BPR was not available on Mrs Pawson's bungalow.  However, more worryingly the Tribunal seems to have adopted a very restrictive view of what will secure BPR.  The Tribunal judge's view was that at heart a holiday letting business is an investment business just like any other and that to be trading the additional services must be so significant as to outweigh the investment activity.  On this very restrictive reading of the law, it is difficult to see how most furnished holiday lets will ever qualify for BPR.

Those who run furnished holiday letting businesses will be disappointed by this decision, though the taxpayer intends to appeal to the Court of Appeal, and a fighting fund to challenge the decision is being raised.

For more information please contact Tom Hewitt.

Key contact

Tom Hewitt

Tom Hewitt Partner

  • Private Wealth
  • Head of Estates and Land
  • Head of Food and Farming

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