Just as we published last week’s tax tips the Government made the stunning announcement that MTD is to be delayed; we have more details below. HMRC’s PAYE computer appears to be programmed with the wrong tax law, so there will be errors in PAYE codes and P800s computations to look out for. Finally, a recent case busts the myth that you can get IHT relief on the value of furnished holiday accommodation.
Below is just an extract from last week’s tax tips email. To receive the full email when it is published each Thursday, simply follow the link on the right (or below, if you’re reading this on a mobile device)
IHT and holiday cottages
Years ago, tax advisers would say that an active holiday lettings business should qualify for IHT business property relief (BPR), if the owner died whilst running the business. This would allow the value of the holiday accommodation to be covered by the 100% BPR exemption.
However, HMRC changed their view on the availability of BPR in late 2008, and have been challenging estates where BPR is claimed for holiday lettings ever since. The first notable case since this change of approach was Pawson, which the taxpayer won at the First-tier Tribunal, but was defeated at the Upper Tribunal. Leave to appeal to a higher court was refused.
The Pawson case concerned just one let property, and although it was actively managed, the Upper Tribunal decided that the property was held mainly as an investment, so it didn’t qualify for BPR.
The latest case of Marjorie Rose, concerned 11 properties owned by a partnership, of which the deceased held a two-thirds share, valued at over £1m. Significant services were provided to the guests in the holiday cottages, by the nearby hotel (owned by the same family) such as internet, parking, administration, personal guest services, food services, ordering milk and newspapers. However, the tribunal decided that all 11 properties were held mainly to obtain rental income, and hence they were investments that do not qualify for BPR.
Where your clients run holiday lettings businesses it would be prudent to review their IHT planning in light of this case.