Im­prov­ing chances of a break from tax for hol­i­day prop­erty

Yorkshire Post - Property - - FRONT PAGE - Robert Peel

WHEN look­ing at the po­ten­tial ex­po­sure to in­her­i­tance tax and the re­liefs avail­able to mit­i­gate it, a very valu­able and gen­er­ous al­lowance is Busi­ness Prop­erty Re­lief (BPR). If BPR is due, the re­lief against in­her­i­tance tax can be ei­ther 50 per cent or 100 per cent de­pend­ing on the cir­cum­stances and the type of busi­ness as­sets in­volved.

Although there are gen­er­ous re­liefs for in­come tax and cap­i­tal gains tax for fur­nished hol­i­day let­tings it has, in the past, been very dif­fi­cult to ob­tain 100 per cent ex­emp­tion for prop­er­ties let out as fur­nished hol­i­day accommodation. Typ­i­cally, it has only been granted where the busi­ness com­prises a num­ber of prop­er­ties. Where there was only one, it was ex­tremely dif­fi­cult to ob­tain any re­lief. Un­der these cir­cum­stances the Rev­enue would usu­ally ar­gue that the prop­erty was held as an in­vest­ment and would not qual­ify for any re­lief.

How­ever, a re­cent tax case heard here in Leeds may be about to change this. The decision of the First Tier Tri­bunal in Paw­son –v- CRC (2011) TC 1748 has de­cided in favour of the tax­payer that re­lief was due in re­spect of a sin­gle prop­erty.

Whether or not re­lief is due de­pends on the in­di­vid­ual cir­cum­stances of each case and the level of ser­vices pro­vided by the owner. Gen­er­ally, the let­tings should be of a short­term na­ture only, ei­ther weekly or fort­nightly, and the owner should be sub­stan­tially in­volved with the hol­i­day mak­ers in terms of their ac­tiv­i­ties on and from the premises. In de­ter­min­ing whether any re­lief is due the Rev­enue will look closely at the level and type of ser­vices pro­vided to the oc­cu­pants.

So what can you do to max­imise your chances of ob­tain­ing 100 per cent as a busi­ness on your fur­nished hol­i­day let­tings? Let’s con­sider a typ­i­cal hol­i­day let. First of all the guests would be met by the owner or agent and the keys handed over. The guests would be shown round the prop­erty and the ser­vices on of­fer ex­plained. The beds would have been made with clean linen and tow­els. There might be a wel­come pack of es­sen­tial items such as tea, milk and bread. The prop­erty will have been cleaned on ar­rival and may be cleaned mid-week. Ba­sic ser­vices such as gas, electricity and water will be in­cluded within the weekly charge.

A TV/DVD player might be pro­vided with ac­cess to a li­brary of DVDS. The gar­den will have been main­tained and rub­bish dis­posed of by the owner at the end of the week. The owner might of­fer other ser­vices such as ar­rang­ing de­liv­ery of gro­ceries and news­pa­pers. Tem­po­rary mem­ber­ship of lo­cal sports and swim­ming fa­cil­i­ties may also be of­fered. The list is end­less and the more ser­vices that are pro­vided the bet­ter chance there is in suc­ceed­ing with any claim to re­lief. What the Rev­enue are look­ing at is whether the owner is of­fer­ing a “hol­i­day ex­pe­ri­ence” or sim­ply a prop­erty to oc­cupy for a week or a fort­night.

In the Paw­son tri­bunal case the Judge con­cluded that an in­tel­li­gent businessman would not re­gard the own­er­ship of a hol­i­day let­ting prop­erty as an in­vest­ment and would re­gard it as in­volv­ing far too ac­tive an op­er­a­tion for it to come un­der that head­ing.

Although the decision was only the first stage and is likely to be ap­pealed by the Rev­enue it is nev­er­the­less en­cour­ag­ing to own­ers of hol­i­day lets as it sets the test as to what an in­tel­li­gent businessman would make of the facts and there is also an im­por­tant ref­er­ence to the dis­tinc­tion be­tween an ac­tive and a pas­sive op­er­a­tion.

Although it is likely that the Rev­enue will con­tinue to con­test claims where only one prop­erty is in­volved, it is en­cour­ag­ing to see that there are pos­i­tive steps an owner can take to max­imise the chances of ob­tain­ing 100 per cent re­lief and that the courts are de­cid­ing in favour of the tax­payer.

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