Shorthold tenancy v furnished holiday let

...”Pearl of a property in a beautiful location” Furnished Holiday businesses

It is fair to say that the vast majority of those involved in the trade of furnished holiday accommodation consider the activity to be a trade. Such a view is supported by the professionals advising the holiday accommodation industry. To put the facts in the most simplest of terms, holiday accommodation is hard work. From every aspect, eg in terms of organisation, services provided and administration, it is a business.

A recent case, A C Curtis Green (TC 4427) went against the taxpayer supporting the opposite view that Business Property Relief (BPR) is not available  on Furnished Holiday Lettings (FHL).

The facts

The taxpayer ran a holiday letting business. Mrs Green transferred 85% in two tranches to a settlement and claimed that the transfers qualified for 100% business property relief (IHTA 1984, s 103 et seq). HMRC stated the transfers were not qualifying because the business consisted mainly of making or holding investments.

Although additional services were provided, such as the provision of a welcome pack, linen and towels, it was held that the value of these did not exceed the value of the services traditionally required to manage an investment property. As highlighted by counsel for HMRC, “guests [were] essentially paying for the right to stay in ‘a pearl’ of a property in a beautiful location”.

The taxpayer informed the tribunal that some properties were let on an assured shorthold tenancy basis. Mrs Green claimed that the difference in rent between a holiday letting and an assured shorthold tenancy represented the value of the services provided under a holiday let. The tribunal held that the percentage of the rent attributable to those services must be small because the price was mainly a result of the location of the property: guests paid for the right to stay in a beautiful place.

Comparison with previous cases

Green v HMRC [2015] TC04427, included a comparison with the cases of George (IRC v George & Anor [2004] STC 147) and Pawson (HMRC v Lockyer & Anor (as personal representatives of Pawson, dec’d) [2013] UKUT 050 (TCC)). The case includes a useful analysis of the services provided in the context of what the client was paying for.

There are no special Inheritance Tax (IHT) rules. The question, then, is how FHL should be treated for the purpose of IHT BPR. The need is to show that the activity amounts to a ‘business’ and, assuming that it does, whether it amounts to a business which consists ‘wholly or mainly of making or holding investments’ which is barred from relief under s105(3) IHTA 1984.

The Pawson and Green cases do have one feature in common, in that neither taxpayer was legally represented before the Tribunal during the case. In Pawson the result before the First-tier Tribunal was successful. In the Green case the result was less helpful. The IHT charge in the Green case arose not as the result of the death of the business owner, but as a result of transfers by her into a lifetime settlement.

The salient features are noteworthy. First of all, the starting point adopted by the Tribunal was that suggested by Henderson J, when giving the Upper Tribunal judgement in Pawson, that “the owning and holding of land in order to obtain an income from it is generally to be characterised as an investment activity”. The Tribunal then followed the earlier Tribunal decision in Best v HMRC [2014] UK FTT 077, using an intelligent businessman test to decide, as a question of fact, whether the activity was an investment; and that the business had to be looked at ‘in the round’.

Location of the owner – living on the property

At point 31: “At all times, Mrs Green lived in Woodbridge, Suffolk. The business has a website through which bookings can be made. If a person wishes to stay at the property, but does not use the website, he telephones Mrs Green in Woodbridge to see if the unit is available, and then completes a booking form and sends it to Mrs Green. For the years 2009-2012, the booking form states that the price included ‘linen and towels, electricity and cots/highchairs’ and went on to say ‘please call our caretaker, Glenda Sturman, on [number] if you have any queries regarding your holiday arrangements.”

Many would argue that Green was a very strong case which with a more careful and forceful presentation it might have been successful.

In order for a FHL case to succeed it will be essential to ensure that the owner is more actively involved than Pawson and Green. The appeal of Green will be interesting.

Julie Butler F.C.A

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