Business Property Relief (BPR) is an attractive tax relief for taxpayers with business interests, offering either 50% or 100% relief from Inheritance Tax (IHT) on the value of their business assets if certain conditions are met. The relief can even be used whilst the donor is still alive, and the estate can still get BPR on qualifying assets.
An interest in a business or a company will not qualify for BPR if the business carried on by the entity consists wholly or mainly of making or holding investments. This fact drives HMRC’s view that furnished holiday lets will in general not qualify for business property relief and it is rare that a successful claim for BPR can be made for these types of assets, but it is a grey area.
However, HMRC’s own guidance can prove instructive. HMRC accepts that ‘there may however be cases where the level of additional services provided is so high that the activity can be considered as non-investment, and each case needs to be treated on its own facts’.
This specific area of HMRC’s guidance has been the subject of much case law. Where a taxpayer can prove that their holiday let business does far more than purely holding investments, such as providing additional services to holiday makers, there can be scope for claiming BPR.
HMRC is likely to reject such BPR claims in the first instance, and previous case law suggests that significant additional activities would need to be offered to move the nature of a holiday let from an investment to an active business.
