Tax Problem for Holiday Home Owners

HM Revenue and Customs have persuaded High Court judges that a large bungalow, called Fairhaven, overlooking the sea on the Suffolk coast was an “investment” rather than a “business”  and therefore chargeable to IHT. The case was taken by HMRC as a test, to establish in law their view that a very substantial level of services need to be offered by the owners of Furnished Holiday Lets for Business Property Relief from IHT to apply.

The services provided to clients, in this case such as cleaning, providing a welcome pack, and being on call to deal with queries and problems, were not sufficient to prevent the activity from being judged to be mainly that of property investment. All the other activities ( marketing, booking expenses, cleaning between lets, routine maintenance ) were judged as being to do with the ‘investment’ side of the business in that any landlord would incur them, albeit presumably less regularly.

This is a very unwelcome decision that may affect more than 100,000 holiday home owners. It is yet to be seen whether the plucky tax payers will attempt an appeal.  In the meantime, and until new guidance is available, owners of Holiday Lets should consider increasing the services offered to guests, for example:

  • organisation of car hire, equipment rental, booking restauraunts
  • in stay cleaning and laundry services;
  • providing food for the fridge or freezer;
  • the provision of a games room, TV, computer
  • the provision of a land line and internet access
  • lots of interaction with the guests (whether they want it or not!).

Contact us on 0151 228 8977, if you would like our advice as to how this might affect you.