Furnished holiday lettings and tax
The UK has very favourable Inheritance Tax (IHT) treatment for the owners of business assets used in a trade and, in general, the value of these will be outside the charge to IHT on death provided certain criteria are met.
The IHT relief available on business assets is called Business Property Relief (BPR), or Agricultural Property Relief in the case of agricultural assets. It is only available for assets used in a trade, not those used to generate investment income, such as the letting of land.
There is a clear grey area, however, when it comes to the provision of furnished holiday lettings (FHLs), as these are subject to a special tax regime. For capital gains tax purposes they qualify for Entrepreneurs’ Relief, Business Asset Rollover Relief and other reliefs. For income tax purposes, capital allowances can be claimed and the earnings qualify as earnings against which pension payments can be treated as a tax deduction.
HM Revenue and Customs (HMRC) have an advice page on FHLs here. Interestingly, this talks little about the level of services that must be provided for lettings to qualify as FHLs;even though the level of services provided is the criterion that HMRC use to claim that lettings of property do not qualify for the reliefs available for FHLs.
In the case of Re. the Estate of Marjorie Ross [2017], HMRC contested a claim that a property worth more than £1 million was an FHL that was eligible for BPR and thus excluded from the estate of a deceased woman partner in the business for IHT purposes. The property concerned consisted of a number of self-catering cottages, the rental terms of which included several features and services which are not frequently found in mere lettings.
HMRC contended that the business was primarily one of the letting of land and that it should not be;treated as anything other than a business investing in land with ancillary services;the essence of the activity remains the exploitation of land in return for rent. HMRC made a point of commenting on the business profits, which had been low for many years, compared with the capital gain, which was in the order of £1 million.
The First-tier Tribunal did not accept that the provision of the additional services, which were supplied directly by the partnership or by an adjacent hotel, made the properties FHLs.
The case is important reading for those considering going into the FHL business or those engaged in holiday letting. There is no doubt that HMRC are upping their efforts to increase the tax yields from IHT.
[edit] Related articles on Designing Buildings Wiki
Featured articles and news
Net zero electricity grids BSRIA guide NZG 5/2024
Outlining the changes needed to transition to net zero.
CIOB Global Student Challenge 2024
Universitas Indonesia wins for second year running.
New project and cultural district described in detail.
The nature of EPCs, crticism and inaccuracies.
History, issues and redesign.
From waste recycling to energy performance the hierchy.
An introduction to WERCS and WEEE responsibilities
Dealing 2 million tonnes of waste equipment a year.
Global BACS Market: analytics and optimisation
A BSRIA glance at building automation and control systems.
What it is and how to use it.
Types of insulating plaster by binder and insulant.
Investors in People: CIOB achieves gold
Reflecting a commitment to employees and members.
Scratching beneath the surface; a guide to selection.
ECA 2024 Apprentice of the Year Award
Entries open for submission until May 31.
UK gov apprenticeship funding from April 2024
Brief summary the policy paper updated in March.
For the World Autism Awareness Month of April.