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Where Taxpayers and Advisers Meet

IHT on Rental prpoerty

Bowler
Posts:34
Joined:Wed Aug 06, 2008 3:59 pm
IHT on Rental prpoerty

Postby Bowler » Wed Aug 30, 2017 3:36 pm

Our daughter is downsizing and using her redundancy money to buy a smaller property for herself and also three holiday-let properties to provide an income. She will inherit a fair sum from my wife and I (presently 86+).

I have suggested to her that my wife and I invest about £150,000 each in the rental properties.

With mirror wills, each will leave our share to the other partner. If one of lives for over two years, there should be a saving of IHT on £300,000. Any snags? Do we have to take a proportion of the rental income?

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: IHT on Rental prpoerty

Postby AnthonyR » Wed Aug 30, 2017 4:05 pm

Recent cases on Furnished Holiday Lets (FHLs) have suggested that Business Property Relief (BPR) is increasing difficult to secure to gain an IHT exemption. The three most recent cases resulted in HMRC successfully denying BPR (Ross, Nott and Green) on holiday lets on the basis that they were essentially investment businesses.

It seems that in order to benefit from BPR you'll need to run something akin to a B&B rather than simply a holiday let, so I'd make sure you take advice before putting too much in purely for tax purposes.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: IHT on Rental prpoerty

Postby maths » Wed Aug 30, 2017 4:34 pm

As AG indicates obtaining BPR (if that is what you are referring to) is almost impossible on FHLs. In any event, were BPR to be available on death then each spouse leaving their estate to the other would simply waste such relief on the first spouse to die.

Owning a beneficial interest in an FHL would mean that you are entitled to a share of any rents and income tax would be due thereon.

Bowler
Posts:34
Joined:Wed Aug 06, 2008 3:59 pm

Re: IHT on Rental prpoerty

Postby Bowler » Wed Aug 30, 2017 5:34 pm

Many thanks. I believed BRR could be transferred like AIM shares and that BPR was available after 2 years,

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: IHT on Rental prpoerty

Postby AnthonyR » Wed Sep 06, 2017 8:49 pm

It can and is, but only where the asset in itself qualifies for business property relief. The issue is that HMRC don't believe that a holiday let (or two) on its own counts as a 'business'.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

alive555
Posts:21
Joined:Mon Jun 29, 2015 1:23 pm

Re: IHT on Rental prpoerty

Postby alive555 » Tue Sep 26, 2017 3:14 pm

So if you had say 8 btls all no mortgaged and changed them to short let's can you incorporate and get bpr ?

That business would require hiring of cleaning staff and heavy full time management . Ie Airbnb . Essentially a hotel type operation .

Thanks for your advise

AnthonyR
Posts:322
Joined:Wed Feb 08, 2017 2:33 pm

Re: IHT on Rental prpoerty

Postby AnthonyR » Wed Oct 11, 2017 9:22 am

It's a very grey area, generally BTLs will not qualify for BPR, regardless of whether they are in a company or otherwise. I've seen some commentary that suggests that if you have some sort of letting management business which happens to also own lots of BTLs the management business will qualify and the other assets will also qualify as part of 'the business'. Generally I disagree with this as BTLs are usually considered an investment asset for BPR purposes.

In order to achieve BPR the recent caselaw suggests that you need to be running a very active business akin to a full B&B or ideally a hotel business. AirBnB has muddied the waters somewhat as it effectively gives landlords more flexibility to create assets which are more like furnished holiday lets, which are a trade for income tax and CGT purposes. However, for IHT purposes HMRC changed their views a few years ago and the Pawson case confirmed that a single FHL didn't qualify, but a larger business may, if it included additional facilities.

Additional facilities and services might include :

operation of a website to attract custom
personal welcome on arrival, to show customers around the property and ensure they know where everything is and how it works
facilities for accommodating pets
swimming pool and maintenance thereof
barbeque facility and fuel supplies
access to games and sporting activities
arrangements for the enjoyment of local tourist activities
provision of a welcome pack
provision of at least some meals, perhaps just the first one upon arrival.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk


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