The new ruling could allow holiday home landlords – who let their properties – to claim business property relief and therefore reduce their inheritance tax (IHT) bill.
HM Revenue and Customs (HMRC) had previously tried to pigeonhole holiday lets with other buy-to-let and rental properties, which all are subject to a 40% inheritance tax charge upon the owner’s death.
However, a recent tribunal heard the taxman’s argument that furnished holiday lets should not be considered a business for IHT purposes, and instead ruled that relief should be given if the owner had substantial involvement with the holidaymakers. As a result of the ruling, holiday lets should now be able to claim business property relief, which in turn provides relief from IHT on the transfer of relevant business assets on death. The subject of the ruling was a UK based holiday property but it could have implications for those who also let properties overseas.
Des Simmons, Managing Director of Bournecoast Holiday Agents said: “The ruling was acutely interesting as there was no clear evidence that the owner had in fact been involved with the holidaymakers, which formed the basis of HMRC’s rules for deciding on the relief.
He added, “While HMRC can be expected to take their arguments to appeal, the decision of the Tribunal is good news. We now just wait to see how many of our current landlords can take advantage of this ruling and how many new landlords start to take advantage of the property market as it is and catch on to the tax benefits available when purchasing properties to let as furnished holiday accommodation. We are perfectly positioned at Bournecoast to help potential holiday letting landlords as the local buy-to-let specialists with over 50 years experience in the holiday letting industry.”
Des also emphasised the importance to those with holiday lets to maintain proper records to allow them to claim the relief at a later date, or to use a long established and reputable company who would keep these records for them as a matter of course.