A successful appeal by HM Revenue and Customs means that Business Property Relief (BPR) on furnished holiday lettings does not apply to Inheritance Tax. The Society of Trust and Estate Practitioners goes on to explain:
The Pawson family jointly owned and operated a holiday cottage in Suffolk, with the late Mrs Pawson owning a quarter share. When she died, her daughters (acting as her executors) claimed that this share was entitled to BPR from inheritance tax. HMRC denied BPR on the grounds that the business consisted ‘wholly or mainly’ of making or holding investments, which disqualified it under s105(3) of the Inheritance Tax Act.
The executors went to the First Tier Tax Tribunal, which ruled in their favour on the grounds that operating a holiday cottage involved providing services, which an investment business would not have done. HMRC appealed to the Upper Tribunal, which in January this year overruled the First Tier judgement (HMRC v Pawson, 2013 UKUT 050 TCC).
The executors sought to take the case to the England & Wales Court of Appeal, and launched a fighting fund to help them pay legal fees. Leave to appeal was denied by the Upper Tribunal and the Court of Appeal itself in response to a written application. The executors then made a final oral application, but earlier this month this too was rejected by Lord Justice Briggs. There was, he said, no realistic prospect of the appeal succeeding, because ordinary property lets did not provide sufficient additional services to qualify as a business.
What is interesting is to see what will happen within the furnished holiday lettings industry. Will they start to provide more service for people renting the property? If so then it would be difficult to argue that businesses are only holding the property for investment purposes. We will have to wait and see.