Courts ease tax relief bindings for diversified rural businesses
Rural businesses which run furnished holiday lets or livery stables could now benefit from Inheritance Tax relief following two favourable court cases.
Previously, neither holiday lets or DIY liveries qualified for Business Property Relief (BPR), as HMRC views them as investment activities rather than trading businesses.
But the two court cases – which were won by the taxpayers – could be turning that on its head, explains Catherine Vickery, tax consultant at Old Mill accountants.
“There has been a raft of cases in the past few years where the taxpayer has lost out on this issue – perhaps there is now a change of tide against HMRC?” she said.
“It doesn’t mean that all liveries and holiday lets will qualify for BPR but it seems there are things you can do to increase your chances of success.”
Recent tax relief cases
In the first case, the Graham family had converted an old farmhouse and ran four self-catering holiday lets.
They offered a wide range of services to help visitors, including a sauna, games room (equipped with a snooker table, table tennis and board games), swimming pool, welcome catering pack, and adult and children’s bikes.
“They went out of their way to greet guests and show them around, offering to go shopping at the market and receiving and refrigerating guests’ grocery deliveries,” explained Vickery.
“Offering the pool, sauna and bikes were key parts of the case. These, combined with the care lavished on guests persuaded the tribunal that this was more than an investment activity, making it eligible for BPR.”
Livery yard case
In the second case, Maureen Vigne ran a DIY livery and employed a yard manager with a British Horse Society qualification to keep an eye on the horses.
Horses were checked at least once a day, and the livery owner also supplied and administered wormers on a quarterly basis to ensure all the horses were wormed properly.
The horses were also provided with home-grown hay in the winter months when there wasn’t sufficient grass.
“While most DIY livery owners are likely to keep an eye on the horses, the fact that there was a qualified employee doing it, and that the owner supplied wormers and hay as a matter of course, was enough to tip the balance in the taxpayer’s favour,” says Mrs Vickery.
“Holiday cottages and livery yards are extremely valuable assets, so the resulting inheritance tax bill could be huge. Anything that you can do to increase your chances of obtaining BPR is therefore extremely worthwhile.”
‘Seek professional advice early on’
However, with HMRC trying to limit BPR availability, it’s also worth considering other, more concrete options to reduce tax bills, she adds.
“It may be worth passing down assets to the next generation at least seven years before death – although that will mean you pass on the income generated.”
Such a gift may also raise a Capital Gains Tax liability – but on holiday lets holdover relief would be available.
“Holdover relief is less likely to apply to livery yards – but there may be other options including the use of a Trust,” she said.
“The important thing is to take professional advice and start planning at an early stage for maximum benefit.”