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Holiday let owners in inheritance tax court victory

Holiday home owners who rent their property have won a victory over the taxman in a dispute over business tax relief.

 
Holiday let owners in inheritance tax court victory

A landmark court case will allow holiday home-owners who let their properties to claim business property relief and reduce their inheritance tax (IHT) bill.

HM Revenue & Customs had tried to categorise holiday lets with other buy-to-let and rental properties, which attract 40% IHT on the owner’s death.

However, a tax tribunal dismissed the taxman’s argument that furnished holiday lets should not be considered a business for IHT purposes, and that relief should only be given when the owner had substantial involvement with the holidaymakers.

HMRC argued that ‘an intelligent businessman would not consider them [holiday lets] to be investments’.

Following the ruling, holiday lets will now be able to claim business property relief, which in turn provides relief from IHT on the transfer of relevant business assets on death.

Although the ruling concerned a UK property, it could have implications for those who let properties overseas.

Stephen Barratt, private client director at accountants James Cowper, said the ruling was particularly interesting as there was no clear evidence that the owner had substantial involvement with the holidaymakers – part of HMRC’s rules for deciding on the relief.

‘While HMRC can be expected to take their arguments to the Upper Tier Tribunal, as it stands, however, the decision is good news and could open the door to a flood of claimants who have been awaiting the verdict. It could also give people greater certainty in planning their affairs,’ said Barratt.

He added that those who have overseas properties could find they can make claims and urged those with holiday lets to maintain proper records to allow them to claim the relief at a later date.

5 comments so far. Why not have your say?

david richardson

Mar 01, 2012 at 19:26

very good news

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dr ray

Mar 01, 2012 at 21:37

Difficult to see why it doesn't apply to B2L as well.

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david richardson

Mar 02, 2012 at 08:56

They should abolish "Death Taxes" altogether

Australia & New Zealand abolished theirs years ago

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Anonymous 1 needed this 'off the record'

Mar 02, 2012 at 14:31

Certainly HMRC have always insisted that such lets are a business for VAT purposes. The whole way the attempt was made to classify these things as long lets makes me sick. If it had succeeded, it would have killed off holiday lets altogether. Who dreams these idiotic ideas up?

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The Wills Man

Mar 06, 2012 at 17:55

Good common sense at last.

@david richardson - Australia and New Zealand have not abolished IHT but have zero rated it - a change could easily be implemented if required.

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