Business Property Relief (BPR) applies to 'relevant business
property' and acts to reduce the value of a property by up to
100%, for inheritance tax purposes. Therefore, Business Property
Relief (BPR) may allow you to pass on some of your business free of
tax, either during your lifetime or as part of your will.
There are a number of requirements that must be met before BPR
can apply. The two key ones are:
The property must be a 'relevant business property'
– this does not include business, carried out at the
property, which has no financial gain
The transferor must have owned the relevant business property
for the period of two years prior to the transfer.
The decision in the case of Nicolette Vivian Pawson
(Deceased) v Commissioners for HMRC, which took place in
November 2011, may have a direct affect on holiday property
lettings' potential to qualify for BPR. The decision reached in
this case put forward that a holiday property let can qualify as a
relevant business property and that it will not necessarily be
viewed as merely an investment. Currently, Section 105(3) of the
Inheritance Tax Act (IHTA) 1984 states that if a business consists
wholly or mainly of holding investments, it will be excluded from
The outcome of the case decided that an intelligent businessman
would not consider the ownership of a holiday letting as an
investment as it is too active a project to be considered as
The First-Tier Tribunal held that the letting of Mrs
Pawson's rental cottage amounted to a business for two years
prior to the death of Mrs Pawson. The letting to holidaymakers was
classed as 'a serious undertaking earnestly pursued' stated
Richard Barlow, Tribunal Judge. They also ruled that the business,
although not always profitable, had been run with the purpose of
achieving a gain and as such was not excluded from BPR by the
provisions in s103(3) of the IHTA 1984.
This decision goes against the previous view of HM Revenue and
Customs and according to Andrew Arnott of Saffery Champness
"is of significant interest to landowners, farmers and
indeed anyone letting a holiday property."
Partner at Hugh James solicitors, Matthew Evans commented
"It is thought that HMRC had a number of similar cases
that they were holding back pending the outcome of this case. We
will now have to wait, with interest, to see how or if they proceed
with these cases."
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