Despite the actions of certain Inspectors of Taxes, HMRC do not make the tax law of the UK. Rather, a very complex interaction between legislation, case law, concessions and interpretation makes up what can be loosely termed, the rules.
In a startling, but much welcomed diversion from the normal, a recent tax case has brought the concept of “common sense” into the arena. In a case looking at holiday lettings, the First Tier Tribunal was asked to consider whether a claim for Inheritance Tax Business Property Relief could be made in respect of a particular holiday letting property.
Having considered the case in full, the Chairman declared that it was clear that no ‘intelligent businessman would consider such a property as Fairhaven to be correctly characterised as an investment. He would consider it to be a business asset to be exploited as part of the provision of services going well beyond an investment as such” and allowed the claim.
So if you’re wanting to maximise tax reliefs for holiday letting properties, you need to provide as many additional services to your customers as possible. These could range from a welcome pack of groceries, a homemade cake, fresh linen and towels during the stay, to providing a cleaner, help with hiring bikes, free broadband etc. Such services would all count in the favour of the holiday home owner to make the most of not only Inheritance tax but also the Capital Gains tax reliefs that are available.