Holiday cottages and IHT Business Property Relief

Pawson deceased v HMRC 2012 UKFTT 51 (TC)

The First-tier tax Tribunal has ruled that a property used as a holiday cottage qualifies for inheritance tax business property relief (BPR).

This case has generated a lot of interest as HMRC has delayed a number of similar cases pending the outcome of this one.  It will be interesting to see if HMRC decide to appeal this decision.

For those interested in how the legal teams interacted prior to the hearing I refer you to paragraphs 3 to 9 of the decision.  Fascinating.

HMRC questioned:

(1)  whether the property in question qualified to be treated as “relevant business property” and (2) was it used in the operation of a business for “gain”.  Section 105 IHTA 1984.

HMRC also argued that:

Even if the use to which the property had been put amounted to the operation of a business in principle, and for gain, it was to be excluded from the term “relevant business property” by reason of section 105(3) IHTA 1984 on the basis that the business consisted wholly or mainly of “holding investments”.

The main findings of the Tribunal were:

1.  The exploitation of the property in question as a holiday cottage amounted to the operation of business.

2.  The business was conducted with a view to gain even though it was not always profitable.

3.  An intelligent businessman would not regard the ownership of a holiday letting property as an investment due to the need to constantly find new occupants and to provide servcies unconnected with and over above those needed for the bare upkeep of the property.

The full judgement is available here.

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