In The Personal Representatives of Grace Joyce Graham (deceased) v HMRC [2018], the First-Tier Tribunal (FTT) has decided that a furnished holiday letting business did not consist wholly or mainly of making or holding investments and therefore qualified for Business Property Relief (BPR).

The entitlement to BPR means that the 40% inheritance tax (IHT) on a holiday property can be avoided. Whether a property is a relevant business property, and therefore could qualify for BPR, is based on a narrow framework and so the position of HMRC is usually that a property is an investment in the land rather than an income-generating business.

Mrs Grace Joyce Graham owned a farmhouse in the Isles of Scilly which she rented out as four self-contained self-catering flats until she died in 2012. Her personal representatives claimed a deduction in the value of her estate, which would reduce its IHT liabilities, on the basis that her holiday property business was a relevant business property. However, HMRC decided in 2015 that it was merely an investment and so not entitled to BPR.

The FTT allowed the appeal of Mrs Graham’s personal representatives as they demonstrated how the property generated additional income from other paid services, such as cycle hire and the use of a pool and sauna.

Your estate may be able to claim BPR on a holiday property to avoid IHT on this aspect of your estate if it can be shown it is run similarly to a bed and breakfast and offers paid services, such as home-made and purchased food and drink, bicycles, and barbecues. However, HMRC’s decision regarding the allowance of BPR will of course still turn on the particular facts of each case.