HMRC Loses Key Holiday Let Tax Case

by Property118.com News Team

10:28 AM, 7th February 2012
About 9 years ago

HMRC Loses Key Holiday Let Tax Case

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HMRC Loses Key Holiday Let Tax Case

The tax man has lost a key case that allows holiday let owners claim business property relief against inheritance tax.

HM Revenue & Customs has argued for many years that holiday lets are an investment, not a business, and as such are not allowed to claim the relief unless the owner was ‘substantially’ involved with holidaymakers.

This was generally believed to exclude furnished holiday lets as they were grouped with buy to let and other rental property income by the tax man.

In a recent case, the executors of an estate appealed to a tax tribunal that a holiday let did qualify for relief as a relevant business property.

The tribunal threw out the HMRC argument that a holiday let is an investment property and found:

  • Running the holiday let had amounted to running a business for some time before the owner’s death
  • Even though the letting was not consistently profitable, running the property was with a view to gain under the appropriate inheritance tax rules
  • The tribunal decided any intelligent businessman would regard owning a holiday let as far too much of an active operation to be regarded as an investment

Lawyers and accountants are expected to unleash a flood of appeals against previous HMRC rulings as a result of the case – and the tax man has held a pipeline of cases pending the result.

HMRC has reserved the right to appeal, but has not lodged any legal challenge.

Business property relief can allow claims of up to 100% of the value of an asset transferred on the owner’s death.

The ruling is of particular interest to anyone running a furnished holiday letting business – and it is possible that properties in Europe that are subject to UK inheritance tax also come under the net.

The ruling also brings holiday lets on farms that previously fell outside other agricultural tax breaks to apply for relief.



Comments

Mary Latham

19:21 PM, 7th February 2012
About 9 years ago

Good result.  In my opinion this should open the argument that landlords who let residential property without using an Agent is also running a business

Which of these does not also apply to residential letting?

Running the holiday let had amounted to running a business for some time before the owner’s death

Even though the letting was not consistently profitable, running the property was with a view to gain under the appropriate inheritance tax rules

The tribunal decided any intelligent businessman would regard owning a holiday let as far too much of an active operation to be regarded as an investment

On this last point the law is on our side because we cannot devolve our legal responsiblities to anyone and "any intelligent (person) would regard owning a (residential property to )let as far to much of an active operation to be regarded as an investment. Arguably there is more work involved in this type of let than a holiday let where most landlords employ cleaning companies to clean up between lets.  Residential landlords deal with much more legislation re tenants deposits, EPC's, ongoing contact with tenants and contractors for repairs, licensing, planning applications, fire safety measures, reference checks, disputes,.............

Mark what about a petition to ask HMRC to treat residential letting as a business?
Think of the difference this could make apart from inheritance tax there would be roll over relief which would encourage landlords to respond to the needs of the market and sell and reinvest without the tax penalities that we face at the moment. 

Mark Alexander

19:41 PM, 7th February 2012
About 9 years ago

I like your suggestion Mary and I completely agree with your views. I will give this further consideration. My only initial worries are that we might been seen as becoming overly political or that we end up spreading ourselves too thinly. If, however, a major landlords association, or better still all the big one collectively, were to start such a petition I would absolutely support it and carry all or their PR stories here.

By the way, I spoke to the RLA today and they are seriously considering offering their support to my petition for Compulsory Licencing of Letting Agents" - see link below

http://epetitions.direct.gov.uk/petitions/28848

22:49 PM, 7th February 2012
About 9 years ago

I don’t think this can be make to apply to normal residential letting of a single property on a single AST, however for student lets and HMO that require lots of hands on management there could be a very good case to be made.  

I don’t see why the use of an agent should make a difference, as it is reasonable for any business to outsource admin.

However be careful if there is outcry about landlords over this, the tax law may get changed in a way we don’t like.   Any one for not being able to offset mortgage interest….

12:31 PM, 10th March 2012
About 9 years ago

 Having let 10 of my own properties as holiday cottages for 30 years, let on SAT another 10, (& as a land agent manage a few score more for others), I would suggest not pursuing too far the idea that the work involved in permanent lets is equivalent to holiday lets. If anything the legislation is more onerous for the latter, and the turnover of occupants bears no comparison. Obviously it varies from set up to set up, but even holiday letting as I do through agents, I would estimate my time 90/10 holiday/permanent.
More power to your elbow in arguing that permanent lets are a business, but please don't suggest to the tax man is is anything like the same business as holiday lets, it is not. As it is, from this April, the income tax rules change on holiday lets to disallow sideways relief.


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