HMRC does not currently regard professionally run self-catering businesses as businesses for Inheritance Tax (IHT) Relief purposes. This major change took place a few years ago under the revised Furnished Holiday Let Rulings (FHL).
Under the changes made by the FHL rulings, Inheritance Tax Relief was removed from self-catering properties. This may have been aimed at stopping second homeowners passing on family owned holiday cottages let occasionally benefiting from IHT Relief. Unfortunately, it had the consequence of removing all of self-catering out of IHT relief, even if run as a full-on business.
PASC UK will be lobbying HMRC for a fairer definition of business in a self-catering context. We believe that if a business meets a majority of the following criteria, it should still be able to apply IHT relief, as was the case before the change:
- If the business charges VAT and is registered for Business Rates
- If the business has full time employee(s) (FTE’s)
- If the business is run for the basis of profit and pays the business tax relevant to its company structure, e.g. Corporation Tax or Income Tax etc.
- If the Business meets its responsibilities under current legislation. Gas, water testing, fire safety, access statements etc.
- If the business is open for paid lettings 240 days a year
- If the property is solely for the use of paying guests and is not used by the owners
We believe that any fair review would say that any business meeting the above criteria is a business by definition. Post the pandemic we will pick up where we left off with HMRC on this.