HMRC internal manual

Inheritance Tax Manual

Business relief: Investment businesses: Holiday lettings

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HMRC’s view is that furnished holiday lets will in general not qualify for business property relief. The income derived from such businesses will largely consist of rent in return for the occupation of property. There may however be cases where the level of additional services provided is so high that the activity can be considered as non-investment, and each case needs to be treated on its own facts.

Our view was confirmed at the Upper Tribunal in the case of Commissioners for HMRC v Lockyer and another, Personal Representatives of Pawson ( deceased)  [2013] UKUT 50 (TCC), which concerned a single bungalow on the Suffolk coast.

The Tribunal found that the various activities carried on, including

  • the taking of active steps to find occupants,
  • making the necessary arrangements with them,
  • collecting payment of the rent,
  • spending on repairs, redecoration and improvement of the property,
  • maintenance of the garden and grounds to keep them in a tidy condition,
  • keeping the property insured

were activities that fell on the investment side of the line.

Services provided, such as cleaning, the provision of heating and hot water, provision of a welcome pack, and being on call to deal with queries and emergencies, were not of such a nature and extent that they prevented the business from being mainly one of holding an investment.

In his decision, Henderson J provided a clear summary of the relevant case law, including Martin/Moore (IHTM25275), George (IHTM25279) and McCall (IHTM25280) and, drawing on Carnwath LJ’s judgement in George, stated

“In any normal property letting businesses, the provision of additional services or facilities of a non-investment nature will either be incidental to the business of holding the property as an investment, or at least will not predominate to such an extent that the business ceases to be mainly one of holding the property as an investment.”       

Henderson J concluded:

“Looking at the business in the round, there was in my view nothing to distinguish it from any other actively managed furnished letting business of a holiday property, and certainly no basis for concluding that the services comprised in the total package preponderated to such an extent that the business ceased to be one which was mainly of an investment nature.”

In another case of Anne Christine Curtis Green v Commissioners for HMRC [2015] UKFTT 334 (TC) the Tribunal supported this approach. The judge also said that scale was not a factor (the property consisted of five self-catering units, as opposed to the single unit in the Pawson case). Furthermore, she found that the difference between the amount of rent that was received from the holiday lets and what might have been received if the property was let on an assured shorthold tenancy was largely attributable to market forces, not to services provided.