Inheritance Tax Setback As Business Property Relief Not Available on Furnished Holiday Let Property

The tax office has recently won an important tribunal case concerning Inheritance Tax when it was held in HMRC v Pawson that Business Property Relief was not available on Furnished Holiday Let property.

For Income Tax purposes, Furnished Holiday Letting is treated as a trade rather than investment. This compares with income from other forms of letting which is treated as investment income. It was originally decided by the tax tribunal that this exceptional treatment should be extended to Inheritance Tax. However, this decision has now been overturned.

The current position of the tribunal is that:

  • In any ‘normal’ case even an actively managed property letting business would be considered as an ‘investment’ business which should not qualify for BPR; and
  • There is no reason to consider that a furnished holiday letting business should be given any peculiar treatment in this context.

Therefore, Business Property Relief would only be available if the services provided to the holiday maker were more significant that the use of the land.
A fighting fund has been set up by a firm of solicitors in the hope that the case can be taken to appeal. Further details of this are available upon request.