The value of some businesses can qualify for relief from inheritance tax (IHT). What about furnished holiday let businesses?

Business property relief (BPR) from IHT applies where the business is wholly or mainly trading. It does not apply where the business is wholly or mainly investing in land. For example, the family run hotel business can be a trading business and qualify for BPR, but the letting of houses is an investment in land and will not qualify for BPR. The problem is that there is a grey area in the middle - holiday let businesses with services and facilities provided to holidaymakers. In the recent case of Cox (Executors) v HMRC, furnished holidays lets within a larger house were held by the tax tribunal not to qualify for BPR.

The arguments

The owner had lived on site and provided holidaymakers with services and facilities (on which see further below). The owner's executors argued that this was a trading business for income and capital gains tax and was also such for IHT and so BPR applied.

HMRC argued that additional services or facilities are unlikely to be enough to qualify for BPR as these businesses are really investments in land. HMRC noted that holiday lettings business offering substantially greater services and facilities than this one, had not qualified for BPR.


The tax tribunal held that the predominant (if not the only) activity was to provide furnished accommodation to holidaymakers on a short-term basis - therefore the business was mainly one of holding land as investments and BPR did not apply. The business did not provide exceptional services and therefore it was on the wrong side of the line between trading and investment activities. The taxpayer lost their claim for BPR.

Services and facilities

The tax tribunal set out a list of services and facilities provided by the owner and categorised them as follows:-

1. Investment activities - being accommodation, parking, fixtures and fittings, communal laundry, repair and maintenance of buildings and garden and grounds, and dealing with bookings and advertising.

These investment activities are on the wrong side of the line for BPR.

2. Incidental or ancillary activities - being the inclusion of electricity and gas, appliances and furniture, utensils and crockery, tea and coffee and washing up liquid, cleaning, bed linen and towels, and welcoming guests. The tax tribunal held that these were an integral part of providing the accommodation, and so part of category 1 or the business of holding land as an investment.

These activities are on the wrong side of the line for BPR if they are only incidental or ancillary to the investment in land.

3. Non-investment activities - being providing books, DVDs, information leaflets, tennis and badminton racquets, crab lines, frisbees, and bucket and spades.

These non-investment activities are the key to qualifying for BPR. They were held in this case to be so insignificant as to be negligible.


This is the latest of a number of cases which show that qualifying for BPR is very difficult for furnished holiday let businesses unless they provide extensive services - similar to those expected of a hotel.

The Office of Tax Simplification (OTS) did recently recommend that furnished holiday let businesses should qualify for BPR, but the recommendations have not been taken up by the government.

You should take advice on whether the value of your furnished holiday lets business can be protected from IHT. If BPR does not apply to your furnished holiday lets business then there is other planning which can be done.


Leigh Gould