Many business-owners will already be aware of the potentially valuable relief which can be used to shield businesses from Inheritance Tax. But are all business-owners aware of the traps which may endanger its availability?
These traps have previously been of issue for furnished holiday let-owners, although the recent case of Graham v Revenue and Customs Commissioners has reaffirmed that BPR can be available to these businesses. Crucially, though, this depends on the level and quality of services provided.
Business Property Relief can protect the full value of a business, or half the value of assets used in a business, from Inheritance Tax. Importantly, however, the relief only applies to businesses which meet the Revenue’s narrow definition of ‘trading’. For the Revenue, collecting rent is not a trading exercise and so the management of a portfolio of rental properties would be an ‘investment’ and so would not be protected by Business Property Relief. Should the same portfolio of properties offer a Bed & Breakfast service to the Revenue are likely to consider the income to be ‘trading’ profit, so that BPR would apply.
By their very nature, many businesses offering holiday accommodation fall somewhere between being a ‘trading’ business and an ‘investment’ business; and this is particularly the case for furnished holiday lets.
In Graham, the holiday lets on the Scilly Isles, despite being self-catering, offered a hamper of local produce to their guests on arrival, produce to pick from the gardens and, for a separate fee, cream teas, breakfast and dinner on request, the hire of bikes, and even the provision of fish from the local quay.
As well as the high level of services, the owners spent around 30 minutes welcoming guests, introducing them to the local area and facilities, before being on hand for the rest of their stay to deal with queries and assistance with events and BBQs. Of particular note to the tribunal were the TripAdvisor comments, which showed that the owners’ welcome and availability were a significant part of guests’ enjoyment (and perhaps allowed the business to charge a higher fee).
This case once again confirms that, for owners of furnished holiday let businesses hoping to gain this valuable relief, the quality and quantity of services provided are paramount. Perhaps a keen eye on the TripAdvisor comments may also work wonders in future…!
To find out more information, or for advice on your Inheritance Tax position, please contact our experienced team on 01392 207020 or email firstname.lastname@example.org.