Introduction »

A haven of success

Business Property Relief (BPR) at 100% of the value of the business or shares is a very important relief for inheritance tax (IHT) purposes.

The relief is not available where the activity does not amount to a business. Where there is a business it cannot exist wholly or mainly for the holding of investments.

This means that HMRC have always strongly resisted claims for BPR on pure property letting, on the basis that it is an ‘investment’ and they have generally found strong support from the Courts. There has been debate, however, on the issue of BPR and furnished holiday lets and a recent case has seen victory for the taxpayer.

The battleground was a nice bungalow in Suffolk with direct access to the beach and accommodation for 11 people to enjoy the local delights. Basically, HMRC argued that the letting of this property by the late owner was not a business and, if it was, then it was just an investment and so BPR was not available on her death.

The Tribunal judge considered the case law precedent which identifies six features of a business. He pointed out that, contrary to the view of HMRC, it was not necessary to have all six features in place but then proceeded to identify all of them as being present in the specific case. He considered that there was a business being conducted on proper lines over a reasonable period of time. It was making a good level of income (£16,000 gross in the final year) and was providing the types of supplies to customers which were expected in that type of business.

On the issue of investment, HMRC found little shelter as the judge summed up as follows: ‘...an intelligent businessman would not regard the ownership of a holiday letting property as an investment as such and would regard it as involving far too active an operation for it to come under that heading. The need to constantly find new occupants and to provide services unconnected with and over and above those needed for the bare upkeep of the property as a property, lead us to conclude that no postulated intelligent businessman would consider such a property as Fairhaven to be correctly characterised as an investment. He would consider it to be a business asset to be exploited as part of the provision of services going well beyond investment as such.’

Please do contact us if you would like further information or a review of whether BPR could be available to you.

Introduction »