Running Holiday Lets Is Not a Business, Rules Tribunal

HMRC has fiercely contested claims from the estate of a holiday lettings partnership that the venture was a business. 

Marjorie Ross's executors challenged an HM Revenue & Customs ruling that her two-thirds share in a partnership renting out eight holiday cottages at Port Gaverne, Cornwall, was entitled to business property relief from paying inheritance tax. 

The estate claimed that as the partnership offered a high level of services such as internet, parking, administration, personal guest services, food services, ordering milk and newspapers, the relief should be allowed. 

HMRC argued that the cottages were an investment, and visitors were buying time and the use of the properties because of their location on the picturesque Cornish coast rather than the services offered by the owners. 

The First Tier Tribunal decided the cottages were self-catering accommodation, not serviced apartments. Even though Mrs Ross spent a lot of time actively managing the properties, they were still an investment rather than a business.

"My view is that concentrating on how much the owner contributed to the business is not sufficient to demonstrate that the character of the business was other than mainly an investment business," said Judge Rachel Short. 

"The test is a qualitative test of the nature of the business, not merely a quantitative test about the extent of the activities carried out by those who run it. Even if the owner had spent every hour of a six-day working week at the cottages, that would not necessarily have demonstrated that this business was not a predominantly investment business."

The cottages were valued at £1.06 million when Mrs Ross died. 

IHT rules allow tax relief on business property or an interest in business unless it involves dealing in land or building or making or holding investments. 

The appeal was dismissed. Read the full case notes.

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Investing in a Property

Investing in a private rented property can be achieved in a variety of ways. Sometimes landlords inherit a property that they then turn over to renting. Sometimes owners of properties become unintentional landlords because they are unable or unwilling to sell a property at the value the market currently dictates.