In a landmark case, the Executors of the late Grace Joyce Graham have won against HMRC, allowing Business Property Relief (BPR) to be claimed on her holiday let.
Mrs Graham owned a holiday letting business which was part of her family home on the Isles of Scilly. This was run on a day-to-day basis by her daughter.
Most BPR cases in the past have been won by HMRC. A property let is typically seen as an investment, rather than a trade business. Such a view means they are unable to claim BPR. However, Mrs Graham offered a range of extra services that tipped the balance on her claim. These included:
- Providing homemade food and drink
- Offering a bike rental to guests
- A games room for guests to use
- The provision of a pool, a sauna and gardens
- Helping guests with planning events
In particular, the ‘personal care lavished upon guests’ was pointed out as being above and beyond what normal holiday lets offer. The services, and the many hours needed to provide them, led to the decision that Mrs Graham’s property was run more like a small, family hotel than a second home let out in the holidays.
The battle between HMRC and owners of holiday lets has been going on for many years, and has seen a number of cases go to court. BPR is very valuable – it can prevent 40% in Inheritance Tax being charged on lets and save people thousands of pounds.
It has been announced that HMRC is appealing the decision. With an Inheritance Tax consultation expected before the next Budget, HMRC may act to move the goalposts before another such case can arise.
Where should HMRC draw the line on what qualifies for BPR, and what doesn’t? It’s clear that a let owner must offer paid services, like a B&B, to make a solid claim for BPR when they pass their business onto the next generation. It’s a tough test to pass, and only an extraordinary letting business will do so. Those who fall short can expect to have their claims challenged by HMRC. This means that proper planning is essential for those hoping to make savings.
Are you concerned about how much the taxman will take out of your estate? Protect your family’s inheritance by getting professional advice from Severn Estate Planning. Get in touch with us today on 01743 387990. Or, email us at firstname.lastname@example.org to set up a free consultation on your finances for later life.