Business property relief (BPR) is available to reduce the value of a business or its assets by 50% or 100%, thus reducing inheritance tax when the asset is passed on. However, it has rarely been applied to holiday lets: indeed, HMRC has successfully defended such cases in the past, proving that holiday lets were for ‘investment purposes’ only and were not ‘income generating’.
Executors prove business property relief applies after ten year battle with HMRC
In this latest case, the executors of Joyce Graham have won a ten-year battle with HMRC as they were able to show that Mrs Graham provided sufficient additional services in addition to the accommodation that showed that her holiday lets were not simply an investment in land.
Mrs Graham owned a farmhouse on the Isles of Scilly called Carnwethers. In addition to living there, she also ran a holiday letting business of four cottages, which were part of her property. When Mrs Graham died, her executors claimed BPR on the value of the property, so that inheritance tax would not have to be paid. HMRC said that the property did not attract BPR as it was mainly an investment holding. The executors appealed HMRC’s decision.
The court heard that Mrs Graham, who used to run Carnwethers as a hotel with her husband, had provided much more than accommodation. Linen, towels, food, drink, household goods, bikes, a pool, sauna and games had been provided, at an extra cost. Mrs Graham’s daughter, who had taken over running the holiday lets from her mother had even helped to organise special events for guests, bought goods for them, such as fresh fish, and provided homemade jam and scones. The lets had enjoyed many repeat visits from guests. All of this, the court decided, amounted to much more than a mere investment holding and BPR is allowed.
Expert advice available
Whilst this may be good news for those providing holiday lets, merely buying fish for your guests is not likely to tip the balance in your favour if you are looking for BPR. You are more likely to have to be running your lets like a hotel or bed and breakfast to be providing the additional services needed.
If you are dealing with a complex estate and need professional assistance, contact our estate administration experts now. You can also read more about administering an estate on our web pages.