Holiday lets are a business, a landmark case has ruled.
It means that owners of holiday homes who let them out will be able to claim business property relief and reduce their Inheritance Tax (IT) bills.
This is in contrast to buy-to-let properties which – despite pressure from groups such as the Residential Landlords Association – are not treated as businesses.
HMRC had tried to categorise holiday lets with other buy-to-let and rental properties, which attract 40% IT on the owner’s death.
However, a tax tribunal dismissed the taxman’s argument that furnished holiday lets should not be considered a business for IT purposes.
It also argued that relief should only be given when the owner had ‘substantial involvement’ with the holidaymakers, and that an ‘intelligent businessman’ would not consider holiday lets to be investments.
Following the ruling, owners of holiday lets will now be able to claim business property relief, which in turn provides relief from IT.
Although the ruling concerned a UK property, it could have implications for those who let properties overseas.
Stephen Barratt, private client director at accountants James Cowper, said the ruling was particularly interesting as there was no clear evidence that the owner in this case had had substantial involvement with the holidaymakers.
Barratt said: “While HMRC can be expected to take their arguments to the Upper Tier Tribunal, as it stands the decision is good news and could open the door to a flood of claimants who have been awaiting the verdict.
“It could also give people greater certainty in planning their affairs.”