A tribunal has ruled in favour of business property relief (BPR) applying to a cottage used as a holiday let.

The tribunal decided that the cottage would qualify as “relevant business property” for the purposes of Part V, Chapter 1 of the Inheritance Tax Act 1984.

The facts of the case briefly are that Mrs Pawson owned a 25% share in the cottage known as Fairhaven when she died on 20 June 2006. Initially HMRC refused the claim for BPR on her share of the cottage and therefore her executors appealed against the decision.

The property is situated on the Suffolk Heritage Coast. It is a large bungalow which overlooks the sea. It can accommodate 11 people and is set in its own grounds of about 0.4 of an acre.

Most years the income generates a profit although there was a loss one year when expenditure was incurred in improving the property.

Members of the family do occupy for 3 weeks during the holiday season. They paid to occupy the property, paying the amounts calculated by HMRC’s literature for private use.

A cleaner and caretaker were employed. Cleaning materials are replenished after about 1 in 3 lettings. The property is fully furnished and lettings were handled by the family.

The tribunal found as follows:

1. The exploitation of Fairhaven amounted to the operation of a business in the two years before Mrs Pawson’s death;
2. The operation as a holiday let was a serious undertaking earnestly pursued;
3. The efforts to advertise for lettings was important in this respect;
4. There was reasonable continuity in the operation;
5. The annual outputs were not de minimis and were an activity having a measure of substance;
6. The use of the property by the family for 3 weeks a year was not enough to prevent the property being run on sound principles;
7. The supplies to consumers were clearly of a type that are commonly made by those seeking to profit;
8. The business was being conducted with a view to gain; and
9. There were significant services provided to the occupiers of the property.