The First Tier Tax Tribunal recently decided in favour of the taxpayer in the latest in a long line of cases concerning the availability of business property relief (BPR) from inheritance tax on furnished holiday lets (FHLs). FHLs will not qualify for BPR if the business consists wholly or mainly of making or holding investments. Essentially this question depends on the level of services offered.
In this case (PRs of Grace Joyce Graham v HMRC) the property was a farmhouse on the Scilly Isles and for many years it was run as a B&B, then as a small country house hotel, before being converted into four self-contained, self-catered holiday flats adjoining the main house. In addition, two guest bedrooms in the house were available for occasional use as B&B accommodation for extended family members of the guests.
The house and flats were set in particularly beautiful gardens which included a swimming pool, sauna, games room, bicycles, golf buggy and BBQ, guest lounge in the main house, reception area with leaflets etc all for use by the guests, and services included being offered tea and coffee on arrival with a welcome pack and what's on guide. The flats were equipped with fresh flowers, bread, milk, wine, tea, coffee and homemade jams etc. All linens were provided.
The deceased and her daughter were heavily involved in the business. They lived full time at the property and were always on hand to deal with the guests. The daughter was described as "assiduous in making herself available to guests", unpacking shopping orders, collecting fresh fish, helping organise activities, occasionally taking guests out etc.
The Tribunal looked at the business, firstly considering all of the different components and then looked at the business in the round. It concluded that this was an exceptional case which just fell on the non-investment side of the line, so that BPR was available. The pool, the sauna, the bikes, and in particular the personal care lavished upon guests by the daughter distinguished it from other “normal” actively managed holiday letting businesses; and the services provided in the package more than balanced the mere provision of a place to stay. It was more like a family run hotel than a second home let out in the holidays.
This decision is good news for owners of FHLs in that recent developments in case law had seemed to suggest that it was almost impossible for such businesses to qualify for BPR, although it does set a high bar for the level of services that need to be provided. Equally it carries on the shift towards a more holistic approach to the facts and away from decisions which suggested that the starting point for all these cases is that holding land in order to obtain an income is generally characterised as an investment activity. It remains to be seen if HMRC will appeal.