Last year a case was heard before the First-tier Tribunal that found a Furnished Holiday Let (FHL) property should not be considered an investment for Business Property Relief (BPR) purposes. This was an important decision for owners of FHL businesses as it confirmed the availability of BPR for Inheritance Tax purposes. If the property in this case had been considered an investment property, BPR would have been denied.

HMRC appealed the First-tier ruling to the Upper Tribunal who have reversed the previous decision.

It would appear that FHL property owners again need to demonstrate that the nature of any additional services provided to persons letting their property are substantial and not merely incidental to the letting of the property. If the additional services are considered to be substantial then a BPR claim may succeed. Otherwise the letting activity will be treated as an investment and BPR will be denied.

In the light of the further ruling FHL property owners should re-examine their Inheritance Tax position. It is possible that an appeal will be made but until then this case remains the current authority.

For Income Tax purposes there is a clear definition of a FHL property. As long as your letting of a property falls within the following criteria it will be considered a FHL and treated as a trade or business.

The definition for Inheritance Tax BPR is again at odds with the Income Tax definition which merely considers periods of letting thus: 

• The minimum period over which a qualifying property must be available for letting to the public in the relevant period is 210 days in a year
• The minimum period over which a qualifying property is actually let to the public in the relevant period is 105 days in a year.
• The accommodation must not be let for periods of longer-term occupation for more than 155 days during a year.
• A “period of grace” allows FHL businesses that don’t continue to meet the “actually let” requirement for one or two years to elect to continue to qualify throughout that period.
• The property must be situated within the UK or EEA.

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