fbpx

Tribunal Excludes Furnished Lettings Business from Inheritance Tax Relief

23rd April 2021 By

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.

Source: Concious

Latest News

High Court Grants Parental Order Despite Previous Adoption

18th April, 2024 By

In law, adopted children are regarded as having been born to their adoptive parents. The Family Division of the High Court recently considered whether that fact precluded a parental order being granted under the Human Fertilisation and Embryology Act 2008 (HFEA) in respect of a child born via surrogacy. A couple who lived in the USA had entered into a surrogacy arrangement with another woman. An adoption order naming the couple as the child's parents had been made by a US court and was automatically recognised under UK law. However,...

Flat Owner Not Liable for Pre-existing Structural Issues

16th April, 2024 By

When building owners carry out works on their property, are they liable for damage to adjoining properties that results from pre-existing structural issues? The Court of Appeal recently provided welcome clarification on that question. The owner of a ground-floor flat wished to extend it by building out into his garden. He served notices on owners of adjoining properties, as required by the Party Wall etc. Act 1996. The works caused the rear wall of two adjoining properties to drop by about 2 mm, which led to internal walls and floor...

Challenge to Will's Validity Rejected by High Court

12th April, 2024 By

The best way to ensure your assets will be distributed as you wish is to have your will professionally drafted by a qualified solicitor. In a recent case, a challenge to the validity of an elderly man's will was dismissed by the High Court. The man had previously made a will in 2011, leaving most of his estate equally to his three children. In 2018, by which time one of his sons had predeceased him, he made a further will, leaving the residue of his estate to his other son...

Defiance of Family Court Orders Will Always End Badly

10th April, 2024 By

Custodial sentences very rarely come into play in the family courts. Where there have been repeated breaches of court orders, however, judges may have little choice but to clamp down. This was illustrated in the High Court during committal proceedings that stemmed from a child custody dispute. The background to the case involved contested proceedings between the father and mother of a young child. These concluded with a court order establishing that the child – a daughter – would live with the mother. Three months later the daughter travelled with...