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Business Property Relief (BPR) provides full relief from inheritance tax (IHT) and is available for the transfer of certain types of business and business assets subject to a minimum ownership period. The transfer can be made during a person’s lifetime or on their death. For BPR to apply the business must be carried on with the view of making a profit and be run on sound business principles.

For income tax and capital gains tax purposes the operation of a furnished holiday let (FHL) is treated as a business and, as such, it might be thought that BPR would be available for IHT. However, a recent tax case has confirmed that an FHL is not automatically treated as a business for IHT purposes and as such BPR may not be allowed (HMRC v Pawson (2013)).

This court decision brings matters more in line with other BPR cases and although it should not preclude all furnished holiday lets from qualifying it does confirm that in the future BPR will be more difficult to obtain; as ever each case will depend upon its own facts.

HMRC’s internal guidance suggests that some claims which were allowed in the past perhaps should not have qualified and in future the level and type of services provided will be looked at more closely, rather than who has been providing the service.