Disappointment for holiday let owners as HMRC wins inheritance tax test case

Thousands of holiday let owners across the country are once again facing paying inheritance tax (IHT) after a court ruling.

A previous tribunal decision in the Pawson case confirmed that furnished holiday lets should not considered an investment, business for IHT purposes but this has been overturned by a High Court judge sitting in the Upper Tier Tribunal. The taxman successfully argued that holiday lets should be categorised with other buy to let and rental property, so it can charge IHT on the owner’s death.

Stephen Barratt, private client director at accountants James Cowper Kreston comments: “It was accepted by all that the letting constituted a business.  The issue was whether or not it was 'mainly' an investment business.  The judge agreed with HMRC that the activities of finding occupiers and maintaining the property outweighed the additional services and facilities.  The fact that the property was actively managed, as opposed to being passive, was not sufficient. Pawson's estate had argued that by offering a cleaner, caretaker and gardener, they provided ‘services' to holidaymakers, but once weighed in the balance these were held not to be enough."

Stephen continued: “The previous ruling in the First Tier Tribunal surprised many, albeit pleasantly, because there was no clear evidence that the owner had provided significant additional services.  In a sense we are back where we started with the same degree of uncertainty for those holiday let owners considering their IHT position.  Relief from IHT remains theoretically possible but it will be difficult to achieve."

Reports suggest that the family will appeal. If that is correct they have until the end of February to do so.

Stephen Barratt, Director, James Cowper Kreston LLP, Tel +44 (0)1635 35255 or email