Station Road, Sidcup

How can we help?

Please fill in this form and we'll get back to you as soon as possible.

Please enter your name
Please enter your email address
Please enter your telephone number
Please enter a question
Please let us know how you heard about us
Please enter the verification code

We’ll only use this information to handle your enquiry and we won’t share it with any third parties. For more details see our Privacy Policy

Tribunal Excludes Furnished Lettings Business from Inheritance Tax Relief

In a ruling of interest to anyone engaged in renting out furnished properties, the First-tier Tribunal (FTT) has taken a restrictive approach to the circumstances in which such enterprises may qualify for Business Property Relief (BPR) from Inheritance Tax (IHT).

The case concerned a house set in scenic grounds which had been converted into five flats. The owner and occupier of one of the flats also owned three of the others which he rented out as furnished holiday accommodation. Following his death, his executors' claim for BPR in respect of the lettings business was rejected by HM Revenue and Customs (HMRC). With more than £220,000 in IHT at stake, the executors challenged that decision before the FTT.

The executors pointed out that the flats were advertised widely for rent in the press, on the internet and via a dedicated website. They were let on a short-term basis to holidaymakers, festival-goers and wedding guests who made use of the grounds. The man and his wife were heavily engaged in the business, expending more than 1,200 hours on managing it annually. It was argued that the business was akin to that of running a hotel or motel.

Dismissing the appeal, however, the FTT preferred HMRC's arguments that the business mainly consisted of holding or making investments. As such, it was excluded from the benefit of BPR by operation of Section 105(3) of the Inheritance Tax Act 1984.

The FTT noted that investment activities associated with the business included the provision of the accommodation, parking spaces, fixtures and fittings, together with the performance of repairs and maintenance and such administrative tasks as dealing with bookings and advertising.

Incidental or ancillary activities, such as the provision of utilities, appliances, kitchen utensils and consumables, were an integral part of the investment activity of providing the accommodation. Non-investment activities, including the provision of books and leisure equipment to guests, were so insignificant as to be negligible. Overall, the lettings business fell firmly on the investment side of the line and BPR was therefore unavailable.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.