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You could qualify for an inheritance tax exemption on your holiday lettings?

If you have inherited a holiday home or B&B you could save thousands of pounds in inheritance tax, according to Kirwans law firm, which wants to make people aware of a landmark ruling against HMRC .

The case, which saw HMRC commissioners lose their claim that the livery business in question should be considered a holding investment rather than an active business, means that more holiday homes forming part of the estate of a deceased person could potentially qualify for 50% or 100% business property relief (BPR) from inheritance tax (IHT).

Consequently, a number of people could benefit from a significant reduction on the 40% IHT paid on all assets over the value of £325,000.


Michelle Hamilton-Graney, private client solicitor at Kirwans, commented: “During the hearing, HMRC claimed that the business concerned, which was latterly owned by the late Maureen Vigne, was not actively engaged in high levels of economic activity and so should be considered a holding investment.

“The upper tribunal had to consider whether it was, in fact, an active working business, or whether it earned income from the payment of dividends, rent or interest – which would mean it was not entitled to BPR.

“The court heard that Ms Vigne had operated the livery stables as a business rather than an investment, employing staff, carrying out routine checks on the animals, and administering worming products.

“These additional services led to the court’s decision that the livery stables should be considered a business – making the asset eligible for business property relief.”

Hamilton-Graney explained that the ruling was important for holiday home owners, as it meant that, if they were able to prove that the business involved more than just renting out property, they may benefit from the tax break.

She added: “B&B operators and holiday home owners who want their property to be eligible for this sort of tax relief need to demonstrate their efforts to build up the business, perhaps by taking on staff members, investing in marketing campaigns, or providing additional services.

“If the court can be satisfied that the deceased person clearly operated the asset as a business rather than an investment, the successor of the estate could benefit from thousands of pounds worth of savings.”


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