HMRC Loses Key Holiday Let Tax CaseMake Text Bigger
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.
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