A recent First Tier Tribunal (FTT) case may have significant implications on the inheritance tax of furnish holiday letting (FHL) businesses.
In the case of Green vs HMRC the FTT assessed whether the activities conducted by Anne Green were extensive enough to rebut the assumption that her FHL business was an investment.
The taxpayer claimed 100 per cent business property relief (BPR) on the life-time transfer of her FHL business into a trust settlement.
Mrs Green argued that there was a wide spectrum of businesses involving the use of the property, ranging from the granting of a tenancy to running a hotel.
The management and maintenance of her FHL was similar to that of a hotel and unlike traditional investments, the income was not generated passively, as she provided services to her guests.
However, The FTT looked at the activities associate with her FHL business, such as management and maintenance and concluded, on balance, that BPR should be denied because the activities performed by Mrs Green were ancillary to the business and did not override the assumption that the FHL business was one of investment.
Inheritance Tax Act 1984, s 104 and s 105 provide that an interest in a business transferred on death is relieved from inheritance tax at 100 per cent, subject to this being “relevant business property”. A relevant business property is qualified as:
“A business or interest in a business… [is] not relevant business property if the business… consists wholly or mainly of… making or holding investments.”
It is worth noting that the legislation which deems income and gains from furnished holiday lets should be regarded as “trading” in nature, has no application to inheritance tax.
If you own or manage an FHL business as part of your farm’s diversification strategy, then you need to be aware of the implications of these findings, as they may have an effect on the amount of inheritance you pass on to your relatives.
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