Holiday let owners attempting to secure inheritance tax (IHT) relief are increasingly being rejected by HMRCas the tax authority takes a stricter stance on claims that rental properties qualify for business property relief (BPR).
A recent ruling against the £1.1 million estate of Gertrud Tanner, which included five managed holiday homes in North Yorkshire, underscores HMRC’s hardline approach. Despite offering cleaning services, gardening, welcome baskets, and guest assistance, the estate was deemed an investment property rather than a business, making it ineligible for the valuable IHT exemption.
The Battle Over Business Status
Under UK tax law, businesses can qualify for up to 100% relief from inheritance tax through BPR, allowing them to pass down assets without incurring the standard 40% IHT charge. However, a long-standing legal grey area exists between holiday lets and traditional hospitality businesses such as hotels and B&Bs, which do qualify for relief.
Holiday let owners argue that their level of service should entitle them to the same tax treatment, but HMRC has consistently rejected such claims. Claire Roberts, a partner at Moore Kingston Smith, said, “There is a long line of cases where holiday accommodation owners have applied for business property relief and been denied.”
According to Roberts, HMRC applies an exceptionally high bar for holiday lets to qualify as a business. “In this case, it fell short,” she noted, adding that the only recent successful case involved a holiday let that provided bed-and-breakfast services on-site—a level of operation exceeding that of a typical rental property.
A Warning to Holiday Let Owners
This latest ruling serves as a clear warning to holiday let owners that HMRC is actively opposing BPR claims for furnished holiday lettings, no matter how extensive their services may be.
“This case is a cautionary reminder that just because an enterprise looks like a business, is run like a business, and sounds like a business, doesn’t mean HMRC will recognize it as such for tax purposes,” Roberts added.
The crackdown comes as Labour prepares to tighten inheritance tax reliefs, capping business and agricultural IHT relief at £1 million from 2026. Any assets above this threshold will see relief reduced to 50%, further limiting tax advantages for property owners.
With the inheritance tax burden increasing, legal and tax experts advise holiday let owners to review their estate planning strategies carefully and explore alternative tax-efficient solutions.
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