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In another defeat for HMRC, a recent tax case held at the First Tier Tax Tribunal has found in favour of the taxpayer in a situation where HMRC were seeking to deny Business Property Relief (BPR) on a furnished holiday letting on the death of the taxpayer.
This relief can prove extremely valuable as 100% Inheritance Tax Relief (IHT) can ultimately be achieved if the conditions to qualify as a furnished holiday letting are met and the business has been running for at least 2 years. The effect of the relief is that the value of the furnished holiday letting business is then given 100% relief on your death with no IHT (at potentially 40%) being payable.
The case in question, Nicolette Vivian Pawson (deceased) and The Commissioners for HMRC, concerned what might best be described as a typical holiday cottage. Reading the transcript of the case it is remarkable how little activity was carried out by the owner. What the tribunal found was that ‘The business was being conducted with a view to gain and we hold that that satisfies the “for gain” requirement in section 103(3) of the Act.'
The services provided are those typically associated with holiday cottages, clean towels and bed linen, television and telephone, hot water, and cleaning and gardening. It was notable that the business generally made profits.
HMRC have been seeking to challenge IHT relief claims on holiday cottages for a number of years and this decision, albeit at the First Tier Tribunal, will come as a blow. We expect HMRC to appeal the decision, but they must do this by 8th February.
Rob Hitch of Dodd & Co said 'This is a major result for taxpayers, but still subject to possible appeal. Dodd & Co will continue to keep the situation under review regarding this case and any others.'
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