The Upper Tribunal has overturned the First-tier Tribunal’s (FTT) decision in the case of HMRC v Pawson [2013] (UKUT 050 (TCC), published 31 January 2013). It has determined that inheritance tax business property relief (BPR) should not be available in relation to a Suffolk property let as a ‘furnished holiday let’.

The decision is a significant one for all owners of ‘furnished holiday lets’.

The Upper Tribunal’s decision turns this on its head. Henderson J held that:

(1) In any ‘normal’ case even an actively managed property letting business would be considered as an ‘investment’ business which should not qualify for BPR; and

(2) There is no reason to consider that a furnished holiday letting business should be given any peculiar treatment in this context.

So, it would appear that the starting point for furnished holiday lets is that they would not normally qualify for BPR and that only where the level of ‘services’ provided to the holiday maker is so extensive as to be more significant than the use of the land per se, will BPR be available.

This decision brings things much more into line with other BPR cases. It is clearly bad news for the owners of furnished holiday lets because the clear implication is that not many of them will qualify for BPR on a proper application of the law.