Owners of furnished holiday lets may find it easier to obtain Business Property Relief from Inheritance Tax after a recent tribunal ruling.
Although HM Revenue & Customs tightened its approach to furnished holiday lets in 2008, the new ruling has raised hopes that more businesses will be eligible for tax relief, says Catherine Vickery, tax planning manager at accountant Old Mill. ’HMRC likes to argue that holiday lets are an investment rather than a business, meaning they do not qualify for relief from Inheritance Tax. Only owners who are providing substantially greater services than a conventional holiday let have been allowed to claim Business Property Relief.
’The tribunal ruling in favour of Mrs Pawson’s estate came as a real surprise, because it said that providing a cleaner, laundry, telephone and television, garden maintenance and switching on the heating before arrival was above and beyond normal holiday let services. It ruled that the property was run as a business and was therefore eligible for Inheritance Tax relief.’
However, HMRC is very likely to appeal the ruling, she warns. ’It could open the floodgates ’ but it is not a binding decision on HMRC, so the guidance is unlikely to change. To be on the safe side, you still need to ensure you’re making a profit and providing a high level of services, like a swimming pool, chef, or on-site shop, for example. But in the long run, there is no better solution than forward planning. So take steps to make over the property to the next generation in plenty of time, so that it falls outside your estate for Inheritance Tax purposes.’
