06 October 2022

In the case of Mr Bruce Firth and another v HMRC the First-tier tax Tribunal considered whether BPR for Inheritance Tax was available on some serviced apartments (“aparthotels”). BPR on the facts of the case was disallowed on the basis that the business was mainly of an investment nature (rather than trading).

It has long been accepted that all property letting businesses sit on a spectrum for BPR purposes. At the trading (and therefore BPR qualifying) end sit businesses where the additional services outweigh the simple property letting activity. For example a luxury hotel with a wealth of guest services and facilities is likely to be firmly at the trading end of the spectrum. At the other end sit businesses that are mainly of an investment nature (and where BPR is not available). For example a house let on an Assured Shorthold tenancy.

Arguments with HMRC generally focus on where a particular business falls on that spectrum with the taxpayer arguing they are mainly trading and HMRC arguing it is mainly an investment business. Unfortunately many recent cases have seen HMRC triumph and it is clear that they pick their cases very carefully. This case is no exception.

The case concerned a business which owned four properties in York and Harrogate which offered serviced apartments. Three of the buildings had manned receptions, one had a conference room and one a café at the time of the tax assessment. The business described itself as “combin[ing] the comfort and quality of a luxury hotel with the space and flexibility of a well-equipped apartment”

The Tribunal considered that activities such as marketing, benchmarking, pricing, bookings, making the apartments ready for guests, dealing with complaints and requests, maintenance, repairs, insurance, and business rates fell on the investment side of the spectrum. On the trading side, it recognised welcome packs, the provision of cleaning if requested, linen, towels, shower gel, furniture, white goods, DVD players and TVs, Wi-Fi, food and the ability to purchase extra packages.

“…although we had a plethora of information, much of it was bald assertion…unsupported by contemporaneous documentation.”

The Tribunal was however clearly concerned about the “surprisingly little” financial information supplied to them and the fact that the general manager, who gave evidence for the tax payer, was in its view “over-egging” the position and that “bald assertions” were unsupported by documentation. Suggestions that the business was comparable to Hotel du Vin and Malmaison were undermined when the general manager was forced to concede she had not stayed in such a hotel for “numerous years”.

Its decision was that the business was on the investment side of the spectrum and BPR was therefore unavailable.

Interestingly, the Tribunal accepted that some aparthotels would fall on the trading side and qualify for BPR. The Tribunal Judge even named a particular provider of aparthotels where she had stayed that would qualify for BPR. Although a review of that business’s website suggests it specialises in hotel management across the world (mainly via franchises) and owns very little accommodation itself.

What does this mean for you?

The narrow point is that if you let serviced apartments you should consider your BPR position very carefully.

The wider point is that this is further proof of the existence of a large “grey area” in the middle of the property letting spectrum where many property letting businesses will sit – and consequently their BPR status will be uncertain. In our experience the owners of such businesses often genuinely believe that BPR will apply. Such business should not take BPR for granted and should look very carefully at whether they can do more to move themselves further towards the trading end of the spectrum.

How can Burges Salmon help?

We can advise on all matters relating to BPR and other inheritance tax reliefs. For more information on this, please contact Tom Hewitt.

Written by Lydia Morris

Key contact

Tom Hewitt

Tom Hewitt Partner

  • Private Wealth
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