The issue of whether Business Property Relief (BPR), to reduce Inheritance Tax, is available for land based businesses (especially holiday lets) has always been a highly contested field. A recent case offers hope for taxpayers.
HMRC consistently try to deny BPR to furnished holiday lets on the ground that holiday lets, unlike hotels or bed and breakfast, are investments in the underlying land, rather than income generating trading businesses. HMRC argue that as the businesses “consist wholly or mainly of ….. making or holding investments” (s105(3) of the Inheritance Act 1984), BPR is not available. Their internal guidance manuals have as the starting point that all land based businesses should be treated as investments unless proved otherwise.
Traditionally case law has accepted HMRC’s viewpoint. In the Pawson case in 2013 consent to appeal the decision was denied on the basis there was no realistic prospect of the appeal succeeding because ordinary property lets do not provide sufficient additional services to qualify as a business.
There is sufficient imprecision in the wording of the statute to try to challenge HMRC’s view. The key has always been in the provision of services; in turning a relatively passive investment into an active trade or service.
The recent case of Personal Representatives of Grace Joyce Graham deceased v HMRC
successfully challenged HMRC. This case argued that there is a spectrum of holiday accommodation with a difference between basic letting or leasing at one end and hotel-keeping, or letting combined with the provision of other activities and services, at the other end. In Mrs Graham’s lettings she provided other services including a pool, sauna, and bikes. It was held that the land was not held mainly for investment purposes, because there was sufficient provision of services for it to be an active business, and so BPR was given.
Jamie Younger of Saffery Champness’s Landed Estates Group notes “Whilst highly subjective in judgment, it is the type, quality and extent of services provided over the accommodation itself that will clinch the argument”.
Unsurprisingly there are further cases being brought which argue that they provide “additional services”. Professor Lesley King TEP wrote in the Law Gazette “The position continues to be that you must be bordering on the nature of a hotel or B&B before you can hope to get relief”. She also stressed that the costs and time taken to fight these cases can be burdensome. In the case of Mrs Graham’s Executors their case lasted 5 years. Executors who want to stand their ground could need to prepare for a long and expensive fight.
The Graham case was a small victory for BPR claims for holiday lettings, but the battle with HMRC is far from over.
If you would like advice on Inheritance Tax please contact Carolyn Bagley
or Rachel Hawkins
. You can also find a link to our Guidance Note on Inheritance Tax here