The executors of the late Grace Joyce Graham have won a case against HMRC in claiming that the holiday property she owned was actually a business and should be entitled to business property relief (BPR)
The decade long saga between HMRC and owners of furnished holiday lets has been dealt a defining blow recently with this landmark case punctuating clearly what the court view and constitute as a holiday property business.
The BPR offers a valuable relief that can prevent the HMRC from claiming 40% in inheritance tax on the holiday property.
An average property worth an estimated £250,000 could therefore save thousands if the property is entitled to BPR.
HMRC have successfully prevented many properties from gaining BPR in recent years because of the tightly defined framework that constitutes a property to be considered a business entity. HMRC will claim that a property is usually an investment in the underlying land as opposed to a business that generates income.
For a property to be considered for BPR, HMRC need the holiday property owner to clearly establish and elaborate how the property generates an income from the letting.
This was a point that the Graham estate were able to establish clearly. They highlighted that Mrs Graham’s customers were provided with many other additional income-generating services throughout their stay.
In addition to the basic accommodation, Mrs Graham offered bikes for hire and the use of sauna and pool at an additional cost. These extra services were deemed similar to bed and breakfast accommodation and emphasised how extra income was created to supplement her overall income.
The First Tier Tax Tribunal was in agreement with the executors’ opinion that the land was used for income and not just “held mainly for investment purposes.” The property was then given BPR entitlements, avoiding inheritance tax.
Moving forward, people who have additional holiday property lets will look to this landmark case as a way of ensuring their property is entitled to BPR. A property must clearly offer paid services, similar to a B&B in order to demonstrate a business-like model.
Whilst HMRC may be reeling at the decision, the joy for holiday property owners may be short lived as an imminent inheritance tax consultation could amend legislation that constitutes a property’s right to claim BPR.
Have you seen a lot of estates fail to claim BPR because of this strict regulation? Will this case help a lot of people in the future?
