A 2015 First Tier Tribunal (FTT) case may have significant implications on the inheritance tax treatment of furnished holiday letting (FHL) businesses.
In the case of Green v HMRC, the FTT assessed whether the activities conducted by Anne Green were extensive enough to rebut the assumption that her FHL business was an investment.
Mrs Green claimed 100 per cent business property relief (BPR) on the lifetime transfer of her FHL business into a trust. She argued that there was a wide spectrum of businesses involving the use of the property, ranging from the granting of a tenancy to running a hotel. The management and maintenance of her FHL was similar to that of a hotel and, unlike traditional investments, the income was not generated passively, as she provided services to her guests.
However, the FTT looked at the activities associated with her FHL business, such as management and maintenance, and concluded, on balance, that BPR should be denied because the activities performed by Mrs Green were ancillary to the business and did not override the assumption that the FHL business was one of investment.
SS 104 and 105 Inheritance Tax Act 1984 provide that an interest in a business transferred on death is relieved from inheritance tax at 100 per cent, subject to this being “relevant business property”.
In considering whether a business interest is relevant business property the Act states that:
“A business or interest in a business… [is] not relevant business property if the business… consists wholly or mainly of… making or holding investments.”
Lee McClellan, a partner and estate planning expert at Palmers, said: “It is worth noting that the legislation which deems that furnished holiday lets should be regarded as “trading” in nature for income and capital gains tax purposes, has no application to inheritance tax. “If you own or manage an FHL business, then you need to be aware of the implications of these findings, as they may impact upon the inheritance you pass on to your relatives.”