Can furnished holiday lets qualify for Inheritance Tax Relief?
Furnished Holiday Lets (“FHL”) are treated as businesses and are entitled to some of the generous tax reliefs afforded to businesses. These reliefs include being entitled to Entrepreneurs’ Relief on the sale of the Furnished Holiday Let which means paying capital gains tax at 10% as opposed to 28% (if you are a higher rate tax payer), and being entitled to claim capital allowances.
However, HM Revenue & Customs’ view is that FHL do not qualify for the generous business property relief for Inheritance Tax purposes. If an asset qualifies for business property relief this means that no inheritance is due on the death.
HM Revenue & Customs’ long held view is that FHL businesses “consist wholly or mainly of dealing in securities, stocks or shares, land or buildings or making or holding investments”. In their opinion the taxpayer is holding the FHL as an investment as opposed to carrying out a business and providing additional services like a hotel or bed and breakfast.
HM Revenue & Customs’ position had been supported by case law, but a recent case which was won by the taxpayer is challenging this view. In the First-tier Tax Tribunal case of Personal Representatives of Grace Joyce Graham deceased, the taxpayer successfully argued that there is a spectrum starting with basic letting or leasing at one end to hotel or letting combined with provision of other services at the other. In the Graham case guests were provided with additional services such as a pool and bikes and the claim for business property relief was granted.
Further cases are now being brought to establish how far the spectrum goes and what additional services need to be provided for an FHL to qualify.
If you would like any advice on what qualifies as a FHL or general inheritance tax advice please contact Latha Rodgers.