24 July 2018
Or perhaps I ought to advise you, do be Scilly? At least in the sense of Mrs Graham who died in 2012 owning Carnwethers, an enlarged farmhouse on one of the islands with four incorporated or adjoining self contained flats over which HMRC and her executors have been arguing ever since.
Last July I blogged about the First Tier Tribunal case with regard to BPR (Business Property Relief) on FHLs (Furnished Holiday Lets) involving the executors of Marjorie Ross. That case referred back to the earlier cases of Pawson and Green, and the Graham case involving Carnwethers took a steer from all of these, as well as from the surprise win on BPR in the Vigne case, which concerned a livery business where the arguments in question are not dissimilar, and other weightier precedents.
Mrs Graham’s executors convinced the Tribunal that the business was not ‘wholly or mainly one of making or holding investments’ and accordingly their claim for relief from Inheritance Tax was successful.
It would be tempting at this point to declare it a victory for the taxpayer, a turning point in the availability of BPR on FHLs, and one in the eye for HMRC.
It is unclear as to whether the case changes all that much when you take the time to look at the detail, and that is not just because First Tier Tribunal decisions don’t create binding precedents, which HMRC have always been quite happy to point out in relation to decisions that don’t go their way.
The property was previously run as both hotel and B&B, and even in its form at the date of death, it offered services and facilities much closer to the hotel end of the spectrum than the let cottage end. I quote from my blog last July in saying: “Businesses of this type need to be verging on the nature of a hotel or B&B before there is a realistic prospect of Inheritance Tax relief becoming available.”
Even HMRC’s own guidance concedes that, and has done for many years.
“IHTA84/s105(3) [the restriction on BPR] will not usually apply to these businesses [hotels, B&Bs, residential homes and other accommodation] in view of the level of services provided.”
Having read a description of Carnwethers and the business, it seems like HMRC were being overly bullish in taking the case to Tribunal. I can’t escape the feeling that, having been arguing for so long they felt like they had to keep going in order to try and get some tax reward for their efforts even though the executors had a really decent case to put forward.
The take away messages for businesses of this type, are:
- The position continues to be that you must be bordering on the nature of a hotel or B&B before you can hope to get relief.
- Even then, the glut of these cases passing through tribunals demonstrate HMRC’s willingness to tie matters up in dispute for years and to force taxpayers to the stress and cost of a Tribunal hearing.
Will your executors have the money and the stomach to take up the fight, which in Mrs Graham’s case has lasted over five years beyond her death?