Tax tribunal case could spell bad news for holiday home owners

A Bristol tax specialist has warned that a judgement of the Upper Tax Tribunal could spell bad news for holiday home owners in relation to their Inheritance Tax (IHT) liabilities.

Critical to the judgement in the Pawson Case was whether Mrs Pawson’s 25 per cent share in a holiday letting business was a business consisting of mainly holding that property as an investment. If the business was not mainly holding an investment, then Business Property Relief would have meant that no Inheritance Tax would be payable on it.

A First Tier Tribunal found in favour of the property owners and against HMRC, allowing the relief. However, HMRC appealed to the Upper Tribunal, who overruled the original decision and found that the business was one of mainly holding an investment and that IHT is therefore payable.

Richard Cartwright, Partner in the Bristol office of Saffery Champness, based in Beaufort Road, Clifton, said: “Critical to this whole case is that for the property to be seen as part of a business qualifying for BPR the activities the owners are concerned with must be significantly different to what one might expect of an actively managed investment business.

“It is not the degree or level of activity that is important – rather the nature of them. It is likely that the Revenue would focus on the level of additional services offered with the property that enhance a holiday experience rather than simple services provided such as cleaning and laundry. In this instance, this was found not to be the case.

“There is a strong message here for all holiday home owners, and we would advise that they consider the status of their properties and the consequent exposure to IHT carefully in the light of this latest judgement.”

There is the opportunity for a further appeal against the judgement to be lodged.