HMRC successfully challenge IHT relief on Furnished Holiday Let

Date: 26/02/13

HMRC successfully challenge IHT relief on Furnished Holiday Let

In a recent tax case last month, HM Revenue & Customs (HMRC) successfully challenged the decision of a previous tax tribunal which had ruled that a Furnished Holiday Let (FHL) should qualify for relief from Inheritance Tax.

The case concerned a FHL on the Suffolk coast which was partly owned by Mrs Nicolette Pawson Deceased.  Her executors claimed that the FHL was a business carried on for gain and therefore that it should not be chargeable to Inheritance Tax under Business Property Relief (BPR).

Whilst HMRC accepted that the FHL may be a business they argued that as it was one of wholly or mainly holding investments, relief from Inheritance Tax under BPR should not be available.  HMRC took the case to the first tier tribunal in 2011 but lost.

However, following an appeal by HMRC, which was heard last month, this decision has now been reversed.  The judge ruled in favour of HMRC, stating that he considered the dominant purpose of the letting business related to the holding of an investment, being the property itself.

The case turned on whether the additional services provided at the FHL, which included cleaning between lets, providing bed linen and maintaining the garden, were sufficient to change the main purpose of the let from an investment activity to a trading activity.

This recent case highlights the importance of rural businesses paying close attention to the structure in which FHLs are owned due to the potential Inheritance Tax consequences both in respect of the FHL property and other farming assets.

It is understood that the executors are hoping to take the case to the Court of Appeal.

For further information regarding the above please do not hesitate to contact James Cornthwaite at the office.


James Cornthwaite FCA CTA

Author: James Cornthwaite FCA CTA

A former pupil at St Aidan’s C of E High School, James attended Blackpool Sixth Form College and Lancaster University, graduating in 2004, gaining BSc. first class honours. He joined Moore and Smalley, Preston in 2005 and qualified as a...

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