The value of some businesses can qualify for relief from inheritance tax (IHT). What about serviced apartments businesses? A recent case Firth and others v HMRC has for the first time looked at a serviced apartments business.

The grey area of serviced apartments

Business property relief (BPR) from IHT can apply 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 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 – serviced apartments. This test is not precise and depends upon the facts of each business. The activities of the business are looked at. In the case of serviced apartments the activities are divided into investment in land – not helpful for BPR - on the one hand. On the other hand there are non-investment activities - providing services beyond holding and letting property – helpful for BPR. A conclusion is drawn as to which side is dominant. Activities such as organising lets can be seen to be just a part of investing in land and not a service.

A hotel or serviced apartment?

The court in this case focussed on customer service and experience. They found it was not comparable to a hotel. The court found that the reception did not provide a concierge service. Reception was closed for more than two thirds of the week. Reception was not on site for all properties. The out of hours service did not cover the gaps in reception service, it was contracted out and it was said to guests to be for emergencies only. The court found that the housekeeping was outsourced and minimalist as the rooms were only cleaned on departure unless stayed in for more than seven nights. More cleaning was only done for an extra charge and only if requested.

Qualifying for BPR (business property relief)

The court concluded that looked at in the round, the services provided here were not enough to take the business over the line to get BPR. The court said that activities such as marketing, pricing, bookings, making the lets ready for guests, dealing with complaints and requests, maintenance and repairs are on the investment side – not helpful for BPR. On the non-investment side – helpful for BPR - are the welcome pack of tea/coffee/biscuits, the provision of cleaning if requested, linen, towels, shower gel, furniture, white goods, DVD player and TV, Wi-Fi, food and the ability to purchase extra packages, but that these services were not enough.

The message here is that to qualify for BPR from IHT, serviced apartments have to be providing a service which outweighs the provision of accommodation, akin to a hotel with concierge service. This is a very high test for a business to meet. Bespoke advice on this would be needed. IHT planning can be done if the relief is not likely to be available.


Leigh Gould