For several years now the lack of availability of Business Property Relief (‘BPR’) for furnished holiday lets (‘FHLs’) has been well known and established through cases such as Pawson, Green and Ross. The courts in these cases ruled that the holiday lets were too much of a passive investment to qualify as a business, even though the owners were providing varying degrees of service it was often held to be no more than would be expected from self-catering (i.e. investment) properties. The boundary between a mere investment and an active business (not “trade”, the legislation says “business”!) is a hard one to cross with the level of other services provided to guests needing to be more akin to a hotel than a self-catering holiday let.
The loss of BPR can be a major blow to an estate. The 100% relief against inheritance tax afforded by BPR can be very valuable, hence why HMRC will be vigorous in their investigations into such a claim. For income tax and CGT purposes however there is usually no argument from HMRC. If the let is furnished, available for let for 210 days a year and let out for 105 days with no long term lets then as far as CGT is concerned the various trading reliefs are available. For income tax purposes too, if those criteria are met then the income is classed as trading thus allowing the owner to claim capital allowances. Such income is also qualifying income for pension purposes allowing for greater retirement planning opportunities. The loss of BPR for the estate after all those lifetime benefits can be most unfortunate.
However, an estate recently succeeded in obtaining the coveted BPR for a holiday let business. The executors of Mrs Grace Joyce Graham claimed the relief for holiday flats on the Isles of Scilly. Smelling blood HMRC contested the claim but the First-Tier tribunal dismissed HMRC’s challenge. In this instance the amount of work the deceased and her daughter put into the business (up to 200 hours per week between them at busy periods) and the level of extra services available to the guests were more akin to a hotel to anything else. New guests were given personal tours of the property and the level of personal attention was such that several TripAdvisor comments highlighted it was this personal input and hospitality which made their holiday special. In addition to the 4 flats on offer, there was: a swimming pool, a croquet lawn, a prize-winning garden (from which the guests could help themselves to herbs), a games room with a snooker table, table tennis, board games and videos; there was a sauna, the laundry room and a BBQ. Each flat was fully furnished and had its own kitchen and dining/living area. Basic foods were provided, flowers were delivered into the flats for new guests along with home-made marmalade (and wine or champagne for special occasions). Golf buggies and bicycles were available to borrow, the guest lounge contained books, an open fire and leaflets on local attractions.
The court pointed out that “it will only be the exceptional letting business which falls on the non-investment side of the line” – making clear that this finding did not alter the recent hard-line taken by the courts. But in this particular instance, Mrs Graham’s personal attentiveness in her lifetime pushed her estate’s BPR claim over that line:
“The pool, the sauna, the bikes, and in particular the personal care lavished upon guests distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would in our view regard it as more like a family run hotel than a second home let out in the holidays”.