Inheritance Tax relief on Furnished Holiday Lets - a glimmer of hope? Kelso : Rennie Welch

Inheritance Tax relief on Furnished Holiday Lets - a glimmer of hope?

Properties let as furnished holiday accommodation can receive privileged tax treatment when compared to residential lettings. If certain qualifying conditions are met the activity can be treated as a trade for Income Tax and Capital Gains Tax (CGT) purposes. However the prospect of the letting activity being treated as a trade for Inheritance Tax (IHT) and attracting Business Property Relief (BPR) has not been good in recent years.

BPR can provide relief from IHT at rates of up to 100%. However the relief will only apply to businesses which are not ‘wholly or mainly investment businesses’. 

HMRC have been successful in a few cases over the last few years where the level of services provided to holidaymakers were found to be too small to classify the business as more than an investment business.

However recently in the ‘Graham’ case the First Tier tribunal (FTT) found that BPR could apply to a holiday letting business in certain circumstances. The facts of the case were as follows:

  • Mrs Graham had four self-contained self-catering flats or cottages in the Scilly Isles which were originally part of the farmhouse where she lived. There were overspill guest bedrooms in the farmhouse.
  • Mrs Graham and her husband had run a B&B, a hotel and then the holiday let business from the property. After Mr Graham died their daughter Louise helped with the running of the business.
  • Leisure facilities were available to guests including a croquet lawn, prize winning gardens with a barbeque area, a games room, a laundry room, bike hire and a swimming pool with a sauna.
  • Guests were provided with a welcome pack and basic supplies, were given refreshments, and they could take produce from the gardens such as herbs and tomatoes.
  • Extensive services were provided to guests and the business took 200 hours per week to run in season.

HMRC contended that the business was one of mainly holding an investment. The personal representatives appealed against this.

The FTT found that the case was an exceptional case which fell just on the ‘non- investment’ side of the line. It is possible that HMRC will appeal this decision in the Upper Tribunal.

Whilst this is a success for the taxpayer it sets a high bar for the level of services that need to be provided. Owners of holiday lets should consider their succession plans and this may include the consideration of whether a lifetime gift of a FHL property is appropriate.

Should you require further assistance with this or any other tax matter, Mairi Drummond of Rennie Welch LLP specialises in the taxation of furnished holiday accommodation and can be contacted on (01573) 224391 or at

Rennie Welch LLP accepts no liability on the basis of this article and detailed advice should be sought before entering into any transaction.

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