Application to Appeal IHT Relief Claim on Holiday Lettings Rejected

15th January, 2014

The door appears to have finally slammed shut on a family’s attempt to obtain Business Property Relief (BPR) from Inheritance Tax (IHT) in respect of a property which had been operated as a furnished holiday letting by their late mother. It has recently been announced that a verbal application to appeal against a Tribunal decision denying BPR has been rejected.

BPR is available on ‘business assets’, but not investment assets, and operates to reduce the value of business assets for IHT purposes. It is therefore a most valuable relief for the beneficiaries of those who are business owners when they die.

In practice, the ruling means that BPR will be available for furnished holiday lettings only where a substantial range of services is also supplied to those renting the property: such services must be sufficient to justify the income being regarded as business income as opposed to mere ‘rent’.

It is expected that this decision will lead to HM Revenue and Customs taking a stronger line in rejecting claims for BPR in similar circumstances and its implications should be considered carefully by those contemplating making such a claim in the future.

It is unclear just how much service should be provided to qualify but it must be significant. In the Pawson case it was argued by the taxpayer that the services provided were not standard and were of a fairly extensive nature however this did not sway the Tribunal’s view.

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