Skip to content

Legal case clarifies taxation of holiday lets in the UK

The case revolved around whether or not the letting of a holiday cottage consisted wholly or mainly of holding an investment. Property consisting of a business or an interest in a business carried on for gain and consisting of something other than the making or holding of investments (relevant business property) is entitled to relief from inheritance tax.

The property in question was a large bungalow overlooking the sea on the Suffolk coast in England. The property could accommodate up to eleven people and was typically let for less than two weeks at a time. HMRC had determined in 2008 that the property was subject to inheritance tax. The taxpayer appealed to the Tax Chamber of the First-Tier Tribunal, claiming that the property was entitled to relief as a ‘relevant business property’.

Although it was occupied by family members for three weeks during the holiday season, a great deal of evidence was given about the operation of the property as a holiday cottage. This included the fact that it was fully furnished and the kitchen fully equipped, was inspected regularly, cleaned between each letting and the garden attended to.

Also supplies such as cleaning materials were replenished on a regular basis, hot water and heating were turned on before visitors arrived and television and a telephone were available.
The Tribunal allowed the appeal on the facts of the case, finding that the additional services were ‘unconnected with and over and above those needed for the bare upkeep of the property as a property’. They were not merely incidental to the holding of the property as an investment. Together with the need constantly to find new occupants, the Tribunal concluded that such a business involved far too much work to be considered an investment business.

The case sets down some useful markers for owners of holiday cottages hoping to attract relief from inheritance tax, according to property consultants Savills. Provided the holiday business is carried out for gain and conducted in a businesslike way, relief should be available where services are provided that are unconnected with and over and above those needed for the bare upkeep of the property as an investment such as clean bedclothes, hot water, heating, television, telephone, furnishings, regular cleaning and replenishment of supplies as well as the operation involving a level of activity that goes above and beyond that required for the management of an investment, for example, actively advertising for holiday lettings and finding new occupants.

The conduct of the Revenue was severely criticised by the Tribunal. The commissioners were late in serving their skeleton argument and attempted to exclude evidence from the appellant on what the Tribunal considered to be ‘ill conceived grounds giving little if any justification for complaint and causing them no difficulty whatsoever in presenting their case’.

This was all the more unsatisfactory in light of the fact that other cases had been stood over pending the result in this case. Rather than allowing the Tribunal to reach its decision on a full consideration of the actual facts, the commissioners had hoped to secure a decision, which they would seek to rely upon in other cases, on an artificially restricted basis.

Savills said that this was highly comparable to its experience of the Revenue's conduct in another case, Golding v HMRC, in which Clive Beer of Savills acted as expert witness for the tax payer.
‘Whilst the Revenue had in open correspondence agreed the basis of their refusal for relief, on the eve of the Hearing they sought to argue a second ground. The Tribunal did not allow the Revenue to take this point and ultimately found in favour of the taxpayer, but the Revenue's tactics in attempting to secure a decision with such far reaching implications are a cause for concern,’ said a spokesman.