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IHT Business Property Relief on Furnished Holiday Lettings

IHT business property relief is extremely valuable, as on your death it effectively eliminates inheritance tax on the value of the property. The problem is that, following recent case law, HMRC are likely to resist any claims on the grounds that the activity of letting properties is nothing more than an investment, even where the people using your property are holiday makers.

The only hope is to ensure that plenty of additional services are provided which would not be provided if it was an ordinary property let. They could include:

• providing daily breakfast (likely to be sufficient to qualify on its own, but may well not be feasible)

• taking the holiday-makers on trips to local attractions during their stay

• on-site help

If you own furnished holiday lets, I think your estate will be in for a fight with the revenue if business property relief is claimed on your death. It would be worth compiling some documentary evidence now of  all the services you provide to guests.

As Capital Gains Tax is not affected by the decision it may be worth considering transferring the property to your children now, but this is something to be carried out as part of a full financial review and you should take professional advice.

 

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