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Glasgow
+44 (0)141 221 2984

Edinburgh
+44 (0)131 225 6366

Stirling
+44 (0)1786 451745

Dumbarton
+44 (0)1389 765238

Hamilton
+44 (0)1698 459444

French Duncan

Furnished Holiday Lets - Inheritance Tax

Inheritance Tax (IHT) is another factor which landlords of Furnished Holiday Let (FHL) properties should consider.

Whether or not a particular property can qualify for Business Property Relief (BPR) for IHT purposes remains a tricky area. If BPR applies, you can get relief of either 50% or 100% on the asset, which can be passed on during your lifetime, or as part of your will.

As demonstrated in the case of HMRC v Nicolette Vivian Pawson 2013 (the Pawson case), the level of services provided highly impacts on whether a FHL landlord is entitled to claim BPR. The extent of services provided must differentiate from those that would be provided by a standard landlord. An increase in the additional services which can be provided in turn increases the chances of a successful BPR claim.

Additional facilities and services might include:

  • operation of a website
  • personal welcome on arrival, to show customers around the property and ensure they know where everything is and how it works
  • facilities for accommodating pets
  • swimming pool and maintenance thereof
  • barbeque facility and fuel supplies
  • access to games and sporting activities
  • arrangements for the enjoyment of local tourist activities
  • provision of a welcome pack
  • provision of some meals

The key to these additional services is it is not essential for all customers to use these additional services, they simply must be offered, many of which could be at an additional charge.

The more recent case of Vigne v HMRC (2017) however has cast doubt on this judgement, arguing that it should not be assumed that a business is an investment business and that the proper starting point is to make no assumption one way or the other.

This decision means that business relief may now be available on activities which would have previously been challenged.

HMRC do provide a clearance service, in which they will advise whether or not your FHL business qualifies for BPR. This service is only worthwhile using if you are confident that the relief will potentially be due.

As things currently stand, a standard FHL business is unlikely to qualify for BPR and although the Vigne case has cast doubt on the Pawson decision, it should be noted that the Vigne case is currently a First-Tier Tribunal case which could be appealed by HMRC. It could however prove to be an unexpectedly significant case in terms of the availability of BPR for FHL’s and the level of services which are required to be provided.

If you are looking for advice relating to your FHL, please contact French Duncan Tax Senior Jen Kinnear either by email to j.kinnear@frenchduncan.co.uk or call 01786 451 745.

This blog is part of a series of eight - you can see all blogs here:

1. Furnished Holiday Lets - an introduction & your obligations

2. Furnished Holiday Lets - qualifying conditions & elections

3. Furnished Holiday Lets - Income Tax & Capital Gains Tax

4. Furnished Holiday Lets - Non Resident Landlords

5. Furnished Holiday Lets - VAT

6. Furnished Holiday Lets - Making Tax Digital (MTD)

7. Furnished Holiday Lets - Conclusion & Services