One of the most valuable reliefs from Inheritance Tax (IHT) is Business Property Relief (BPR), which allows the transfer of qualifying business property from the deceased's estate at a nil value for IHT purposes.
The rules on what constitutes business property are many and complex and the principal exclusion from availability for BPR is where a business is an investment business – or put precisely, where its activities 'consist wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments'.
One big area of contention is that of furnished holiday lettings, which can qualify for favourable treatment with regard to other taxes. However, HM Revenue and Customs see holiday lettings as easy pickings for IHT purposes and will routinely claim that they are investments in land, rather than businesses per se.
By and large, HMRC have been successful with this argument, but not always. The key to the decision will lie in the level of services that are provided with the letting. In a recent case in which the guests were provided with several services, including a pool and sauna, the Upper Tribunal agreed that it was a business.
A number of similar cases are pending and it will be interesting to see just how close to operating as a hotel (albeit one with weekly lets) the business must be to qualify for BPR.
Watch this space.
For help and advice please contact the private client team on 0808 166 5638.
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