New Taxation Decision on Furnished Holiday Accommodation

Feb. 9, 2012 - PRLog -- ‘Until 2008 HMRC accepted that owners of furnished holiday accommodation could claim business property relief for inheritance tax purposes, which meant that the value of such properties would not be included in their taxable estate when they died.  It also meant that it was easier to make lifetime gifts of holiday lets.

‘In November 2008, however, HMRC quietly altered one paragraph in their Inheritance Tax Manual to say that unless significant extra services were provided with furnished holiday lettings they no longer took the view that these were ‘business property’ for inheritance tax purposes, because they fell within the exclusion for ‘making or holding investments’.  In other words, HMRC took the view that there was no difference between a landlord of furnished holiday accommodation and an investor with a managed portfolio of office blocks and warehouses.  

In December 2011, the First Tier Tax Tribunal decided a case involving the late Mrs Pawson, a lady who had died in 2006 owning a 25% share in a holiday cottage.  The services provided to the holidaymakers were only the basic ones such as cleaning and laundry, and Mrs Pawson was not personally involved in the provision of these as they were contracted out.

HMRC said that business property relief was not due as Mrs Pawson’s interest in the cottage had been more of an ‘investment’ than a ‘business’.

It is not an exaggeration to say the Tribunal poured scorn on HMRC’s contentions, pointing out that a businessman looking for a passive investment would not even consider furnished holiday accommodation because of the additional work involved in organising the necessary services and finding new tenants every week or fortnight.

They therefore allowed business property relief on the cottage.

Finally, James sounded a note of caution:

‘This is potentially very good news for landlords of furnished holiday accommodation,’ said James.

‘A decision of the First Tier Tribunal is not a precedent that HMRC have to follow, and it remains possible at this stage that they will appeal against the decision, but (along with another recent case which suggested that capital gains tax may also be less of a problem for furnished holiday lettings than has been thought) this does represent a significant piece of good news for an industry which is vitally important in our region.  I hope that HMRC, still smarting no doubt from the dressing down they were given by the Tribunal both for the arguments they raised and the way they presented their case, will decide to accept that holiday lettings are a genuine ‘business’ and to stop seeking to charge inheritance tax on them.’

If you are concerned about how this decision may affect you, please contact James Bailey at Robinson Reed Layton on 01872 276116.

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