The Upper Tribunal has overturned a First Tier Tribunal decision on business property relief (BPR) in CRC v Lockyer and Robertson (as the personal representatives of Pawson, deceased) ruling that BPR was not available on the deceased's holiday bungalow as it had been held 'mainly as an investment'.
The Upper Tribunal's decision on this case on 28 January had been eagerly awaited as Lockyer and Robertson, representing the deceased, had had a somewhat surprising victory at the FTT; this had raised the possibility that furnished holiday lets, where only minimal services were provided, would qualify for BPR.
Mrs Pawson owned a quarter-share in a bungalow, the remainder being owned by her children. For more than two years before her death the bungalow had been let as a holiday cottage. On her death, her daughters claimed BPR in respect of her share of the bungalow on the basis that it had been used for a holiday letting business carried on for gain.
HMRC disallowed the claim for BPR on the basis that the business consisted 'wholly or mainly' of making or holding investments.
The FTT found that the letting of the bungalow was a business with a view to a gain, and that 'an intelligent businessman' would regard it as 'involving far too active an operation' for it to be considered an investment business.
HMRC appealed to the Upper Tribunal, which allowed its appeal. Mr Justice Henderson took as his starting point 'the proposition 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 judge added that the property could be managed actively and still be retained as an investment.
He found that the services provided, such as cleaning, providing a welcome pack, and being on call to deal with queries and problems, 'were all of a relatively standard nature' and there was 'nothing to distinguish it from any other actively managed furnished letting business of a holiday property'.
The decision is clearly bad news for owners of furnished holiday lets as BPR will only be available where the services provided to the client are more significant than the use of the land, meaning the majority will not qualify for BPR.
It is understood that the executors' accountants, Francis Clark LLP, is planning to take the case to the Court of Appeal.