Graham - holiday letting business qualified for business property relief

In The Personal Representatives of Grace Joyce Graham (deceased) v HMRC [2018] UKFTT 0306 (TC), the First-tier Tribunal (FTT) has held that a furnished holiday letting business did not consist wholly or mainly of making or holding investments and so qualified for business property relief (BPR).

Background

Mrs Grace Joyce Graham (Mrs Graham) died in November 2012. At the time of her death, she owned an old farmhouse called Carnwethers in the Isles of Scilly. Up until the time of her death, Mrs Graham, ran a business at Carnwethers which involved the provision of accommodation in four self-contained self-catering flats or cottages which were part of the building at Carnwethers.

Following Mrs Graham's death, her personal representatives claimed a deduction in the computation of the value of her estate on the basis that part of her interest in Carnwethers was, by virtue of the business she ran there, relevant business property within sections 103 to 114, Inheritance Act 1984 (IHTA). Although HMRC did not dispute that Mrs Graham conducted a business at Carnwethers, it was of the view that the business consisted mainly of holding an investment, namely, her interest in Carnwethers and was therefore not a relevant business property by virtue of section 105(3), IHTA. Section 105(3)  provides:

“(3) A business or an interest in the business [is] not relevant business property if the business ... consists wholly or mainly of one of the following, that is to say, dealing in securities, stocks or shares, land or buildings or making or holding investments”

HMRC issued a notice of determination on 24 March 2015, disallowing the claim for business property relief on the basis that the business was not relevant business property as it consisted of holding an investment.

Mrs Graham's personal representatives appealed the determination.

FTT decision

The appeal was allowed.

The issue for the FTT to determine was whether the business was "wholly or mainly one of making or holding investments", for the purposes of section 105(3), IHTA. The FTT followed the two stage analysis applied in Personal Representative of the Estate of M W Vigne deceased v HMRC [2017] UKFTT 632 (TC), namely:

1. looking at all the components of the business separately, would an intelligent businessman view the business as mainly the holding of investments?; and
2. if an element is identified which has a substantial investment component, do the other non-investment components outweigh it?

 In the view of the FTT, taking payments from guests in exchange for accommodation, advertising, taking bookings and repairing and maintaining the buildings, could be categorised as investment activities. However, there were other aspects which  clearly did not fall into this category, such as providing home-made and purchased food and drink including fresh fish, household goods, bicycles, games, assistance and advice. The provision of linen and towels, barbeques, cream teas and helping to organise events for guests were also non-investment activities. Some activities, such as the provision of gardens, a pool and sauna, represented a mix of investment and non-investment activity. 

The FTT considered the business in the round in order to determine which aspects predominated. Overall, the FTT concluded that this was an exceptional case which, on balance, should be regarded as predominantly a non-investment business. In particular, the personal care lavished upon guests distinguished the business from other “normal” actively managed holiday letting businesses and the services provided in the package more than balanced the mere provision of a place to stay. An intelligent businessman would, in the FTT's view, regard the business as similar to a family run hotel.

Comment

This decision, as is normally the case in claims for BPR, turned on its own particular facts, but taxpayers will nonetheless find it helpful to consider both the methodology employed by the FTT in reaching its decision and also how the various activities and services under consideration were categorised as investment or non-investment components.