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Taxpayers victorious on Business Property Relief claim

View profile for Caroline Dowding
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There have been many high profile cases in recent years in which executors have endeavoured to claim Business Property Relief (BPR) on let holiday cottages, in a bid to save on Inheritance Tax – all of which have failed. Until now, let cottages have been deemed to ‘consist wholly or mainly of…land or buildings or making or holding investments’ under the legislation, and because of this, claims for BPR have always been in favour of HMRC.

However, it seems that the tables have finally turned.

In the case of Executors of Joyce Graham (deceased) v HMRC, the executors argued that BPR should be allowed on the holiday lets.

Mrs Graham lived in an enlarged old farmhouse on the Isles of Scilly, which incorporated four self-contained flats, having previously been used as a bed and breakfast.

What made this stand out from other similar cases is the level of services provided by Mrs Graham. The guests had use of an acre of landscaped gardens, swimming pool, sauna, BBQ area, games room with pool table, laundry room, bicycle and golf buggy hire, as well as leaflets about local attractions, and welcome packs for each guest. In addition to the services, was a very hands-on approach to welcoming the guests and ensuring they had an enjoyable stay throughout.

Whilst HMRC did not dispute that a business was being operated, they argued that the business was one of investment, and therefore BPR did not apply. Following the case of HMRC v Brander, judges are required to look at the business ‘in the round’, taking into account the level of services provided. Although marginal, it was agreed that the additional services took more time to administer than the upkeep and management of the business, and as such the court ruled that the business was not one that consisted wholly or mainly of holding investments, and therefore the claim for BPR was successful.

Whilst this is certainly a success on the taxpayers’ part, the judge noted that this was an exceptional case because of the sheer volume of additional services provided and the high level of personal care provided by the family. Despite this, it only just tipped the balance in favour of the executors.

Inheritance tax reliefs can be a complex area of the law, therefore, if you have any questions or queries about their application, or need some tax planning advice, please contact one of our specialists on 01206 217394 or alternatively you can email me at