Business Property Relief (“BPR”) is not usually available on business assets which are wholly or mainly holding investments (i.e businesses which involve the letting of property). This is because BPR is only available on businesses involved in trade. With many landowners seeking to diversify their business to include the letting of property and land, can BPR still be captured?
In the 2017 case of The Personal Representatives of Maureen W Vigne Deceased v HMRC we saw that a livery providing additional services outside those associated with the letting of land (providing hay in the winter, removing manure and checking the horses on a daily basis) was eligible for BPR. As I reported at the time, this was great news for those involved in liveries where applications for BPR had uniformly been rejected previously. Now a new case has reached the First Tier Tribunal concerning holiday lets and there is more good news.
The case of The Personal Representatives of Grace Joyce Graham Deceased v HMRC involved a holiday let provided by Grace Graham. The Personal Representatives of her estate had applied for BPR on the basis that the holiday let was more than just a holding investment. This was rejected by HMRC. On considering the case, the First Tier Tribunal agreed that it was necessary to look at each component of the business and decide whether the work involved related to that of a holding investment or that of a trading business. The Tribunal therefore looked to the services provided by Mrs Graham. Of course in providing her holiday let Mrs Graham did accept payment from guests in exchange for accommodation. She advertised, took bookings and dealt with the usual repairs and maintenance of the building. These activities are all associated with managing a holding investment and therefore a claim for BPR would usually be rejected.
However, Mrs Graham also provided a pool, sauna and gardens which the Tribunal considered to be a mix of holding investment and trading services. Where Mrs Graham’s case was set aside from a holiday let was in the additional services which she provided. Mrs Graham made her guests homemade food and purchased food, drink and household goods for their stay. She provided linen, bicycles, BBQs, cream teas and helped guests arrange activities. The First Tier Tribunal compared some of these services to that provided by a family run hotel.
On the basis of the exceptional level of services and amenities available to guests, the First Tier Tribunal found that Mrs Graham’s business was not wholly or mainly a holding investment. This was on the basis that the non-investment activities of the business marginally outweighed the holding investment activities (albeit in narrow margins).
As with all claims of this nature, the Tribunal’s decision very much turned on the particular facts of the case. With news of an appeal on the horizon by HMRC in the Vigne case, claims for BPR in this area cannot be certain. However when considering passing your business to future generations, the level of service associated with your business could have a huge impact on whether it is sold, in order to pay Inheritance Tax, or retained because BPR is available.
At Hay & Kilner, our multi-disciplinary Rural Team advise on all legal issues for farmers, rural businesses and land owners, from succession and IHT planning, to development opportunities, employment and business law issues.
For more information on any of the above, or how we can help your business, please contact Alison Hall, or call 0191 232 8345.