In a recent inheritance tax case involving HMRC and Mrs Joyce Graham, the tax payer has been victorious in a Business Property Relief claim.
In recent years tax cases involving holiday lets have gone the wrong way for taxpayers, however, this is a far better case exploring the nature of what is done in individual circumstances.
In brief, Business Property Relief (BPR) can take up to 100% of the value of some business assets out of the charge to tax inheritance, provided various conditions are met. The business must not be one that is wholly or mainly holding investments and HMRC have often argued that a holiday let business is one that is mainly holding an investment.
The case in question involved Mrs Graham, who lived in a converted farmhouse in the Isles of Scilly. Within the grounds were 4 self-contained flats, and guests had a swimming pool, BBQ area, games room and bike hire at their disposal, as well as many other services, such as welcome packs for guests, all of which were provided by Mrs Graham and her daughter through a hands-on approach.
HMRC argued the business was operating as an investment, meaning BPR should not apply. The executors argued that it was it was much more than an investment – and therefore that BPR should be allowed.
The Tribunal looked at the time spent in providing services to the guests and even referred to Trip Advisor for evidence that part of the reason the operation was successful was the level of service provided by Mrs Graham and her daughter. They felt that the time invested in the upkeep and functioning of the business was too great to constitute an investment alone.
The detail in the decision is useful for comparison for other holiday lettings businesses as it talks at length about the reason why the Tribunal felt that this operation was closer to the level of services provided by a hotel, which would qualify for BPR, rather than merely letting land with little provision of services which would not.
The result of this case will bring some positive relief to farms and estates that let holiday accommodation, but it is merely a Tribunal decision and does stress the importance of looking at each case on its own merits.
If you have any questions regarding tax reliefs, or any other personal tax issues, please get in touch with one of our experts who can help you negotiate the complexities.