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Furnished Holiday Lets will not qualify for Inheritance Tax Relief

04 July 2013 #Commercial Real Estate

The Upper Tier Tax Tribunal has disallowed a claim for Business Property Relief in respect of a holiday letting.

‘Relevant Business Property’ qualifies for a 100% exemption from Inheritance Tax. However under the Inheritance Tax Act 1984, a business is not Relevant Business Property if consists wholly or mainly of making or holding investments. Whether holiday lettings qualify as Relevant Business Property or not has been the subject of much debate in recent years.

The Upper Tier decision involved the late Mrs Pawson who owned a 25% share of a bungalow in Suffolk. The bungalow was let to holiday-makers for short breaks (up to 2 weeks). The executors argued that the business was not merely an investment because they provided a number of services, such as cleaning, gardening and laundry. However the Upper Tier Tribunal disagreed. It stated that where the principal activity of a business involved deriving income from the occupation of land then the starting point would be that the business is mainly one of investment. Only if the services provided were very extensive, would the business qualify as Relevant Business Property.

Clearly the precedent set in the Pawson case is not good news for the owners of holiday lets. Furthermore it gives no indication as to what level of services would allow the business to qualify for the Inheritance Tax exemption.

Clarkslegal, specialist Real Estate lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Real Estate matter please contact Clarkslegal's real estate team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full General Notices on our website.

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