A Revenue victory against the taxpayer has put another nail in the coffin for businesses hoping to obtain Business Property Relief from Inheritance Tax.
In (Cox (Executors) v HMRC 2020 UKFTT 442 TC), the business in question was a furnished holiday let. Although the Revenue has always had a suspicious eye on businesses of this nature for BPR (Business Property Relief) purposes, the Executors here felt that they had a good case. After all, the services were enough to push the business into being a ‘trading’ one - surely?
For Business Property Relief purposes, Inheritance Tax relief will only apply if the enterprise is not deemed to consist “wholly or mainly of...making or holding investments”. Strange as it seems, the Revenue makes a very fine distinction between businesses using land:
- On the one hand, a business managing a portfolio of tenanted properties would fall short of the test. Here, the Revenue argues that the business is holding the properties as a means of generating rental income and so class it as being carried out for investment purposes, so BPR is denied.
- By contrast, if the same portfolio of properties were used to provide bed and breakfast accommodation, the Revenue would usually class the business as a trading business and so permit Inheritance Tax relief. The justification for this is the additional level of service offered to the users of the bed and breakfast business; in the Revenue’s eyes, the fees are for more than simply staying the night.
Here, the furnished holiday let business offered a library of books for its guests to use, puzzles, games, use of fishing nets, tennis racquets and balls, and even the occasional baby or dog-sitting service, as well as offering a taxi service where needed.
In the judge’s eyes, though, the childcare and taxi ‘services’ were too rarely offered to be of significance and the other elements were of small weight in the context of the business. The decision, then, was to deny BPR.
This case is a salutary reminder that, for businesses such as furnished holiday lets and parks, the question of whether BPR can apply really is on the borderline. Quality and quantity of services are all-important and it is vital to seek advice in presenting your case to the Revenue.