If you are the owner of one or more holiday lets, this summer is no doubt being a fruitful season given that temperatures have been similar to the Mediterranean. More and more families continue to enjoy the ‘staycation’ instead of going abroad.
Whilst owning holiday lets have many perks, there have been continuous disputes with HMRC on the death of the owner over whether such business interests qualify for business property relief (BPR) for Inheritance Tax (IHT) purposes.
BPR provides relief from IHT on business assets at a rate of 50% or 100% depending on the type of business assets, how they are held and how long they have been held. BPR is therefore a very valuable relief for succession planning and can produce significant tax savings for beneficiaries.
HMRC’s standard position is that BPR cannot be applied to businesses that ‘consist wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments’, as specified in the Inheritance Tax Act 1984. HMRC argues that this definition includes holiday lets on the basis they are generally owned as “land investments”, rather than as an income-generating hospitality business like a hotel or bed and breakfast. This has been, and will continue to be, a sticking point for those business owners who simply provide accommodation.
Although a number of cases have unsuccessfully tried to challenge HMRC on the eligibility of BPR to be applied to a deceased’s interest in a holiday let, the recent case of Grace Joyce Graham deceased v HMRC (2018 UKFTT 306 TC) shows that it is possible to successfully make a case for why BPR should be granted.
Demonstrating that you go beyond the usual services provided by a holiday let is crucial. Guests to Mrs Graham’s lettings were provided with many other services, such as a pool, sauna, bikes, and generous personal care. The First-tier Tax Tribunal agreed with Mrs Graham’s executors that the land was not held mainly for investment purposes and granted BPR to the estate.
The Graham case is an interesting outcome and arguably the right one. It gives the impression that cases will be looked at individually with consideration being given to the extent and quality of services being offered in addition to just usual accommodation.
It is essential that if you are the owner of holiday lets that you consider what you can do whilst you are alive to promote the possibility of a claim for BPR on death. With careful planning and the input from your solicitor and accountant, you can make things easier for those who you leave behind.
Paul Collingwood is an Associate in the specialist Wills and Probate team at law firm Sintons, based in Newcastle. To speak to Paul about this or any other matter, contact him on 0191 226 3713 or firstname.lastname@example.org.
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