Much more trading, less investment!

We will take a look at the eligibility of providing holiday home lets that allows for business property tax relief under estate tax guidelines.

Business property relief (BPR) is a beneficial inheritance tax (IHT) tax relief for company owners, which is available where certain conditions are met. The business tax relief relates to ‘pertinent business property’, including a business or interest in a business, and unquoted shares in a company. The BPR rate applicable to those groups is 100% (although from 6 April 2026, the 100% tax relief currently available without any limitation to ₤ 1m of possessions, with a 50% rate over that threshold)

Nonetheless, there is an exemption from BPR (subject to limited exemptions) if business, or the business carried on by the company, is composed entirely or mostly of ‘making or holding investments’ (IHTA 1984, s 105( 3 )). This restriction can create troubles for certain categories of business, including equipped holiday lodging, i.e., whether that activity amounts to a business; and if so, whether the business is generally one of ‘holding investments’. This problem has caused a number of disagreements in between taxpayers and HM Revenue and Customs (HMRC).

In Lockyer and Robertson (PRs of Pawson) v HMRC [2013] UKUT 50, the deceased had an interest in a large bungalow, which was run as a vacation lettings business. It was held that business continued was primarily that of holding the property as an investment. The services provided to guests were not adequate to prevent business from being mostly investment in nature. Taxpayers have actually been unsuccessful in several subsequent BPR claims for holiday lodging, including Green v HMRC [2015] UKFTT 334 (TC), Executors of Ross v HMRC [2017] UKFTT 507 (TC), and Executors of Cox v HMRC [2020] UKFTT 442 (TC).

Nevertheless, in PRs of Graham v HMRC [2018] UKFTT 306 (TC), a BPR claim was permitted. The individual’s business involved 4 supplied self-catering apartments or cottages. The First-tier Tribunal (FTT) located that some provisions and activities in the business were not normally supplied at smaller sized hotels (e.g., swimming pool, sauna, bikes to work with, video games, marmalade and other provisions, and the inviting of visitors). Other solutions or activities were generally given at a resort or guesthouse but not there (e.g., dishes, a bar, the day-to-day production of beds, and cleansing or cleaning). In general, business ‘just’ fell on the ‘not-mainly-investment’ side of the line.

The Graham situation was ultimately considered in Executors of Tanner v HMRC [2025] UKFTT 328 (TC). Sadly for the taxpayer in Tanner, a vacation lodging business making up five energetic self-catering vacation allowing systems, when viewed as a whole, was held to be generally one of holding investments, such that BPR was not readily available.

The FTT court in the Tanner situation explained that while a court had formerly mentioned that it would be uncommon for an allowing business to not be taken into consideration an investment, this did not suggest that an allowing business should be remarkable to fall on the non-investment side. Therefore, taxpayers may find it challenging to receive Business Property Relief (BPR) on holiday lettings.

HMRC’s view (in its Inheritance Tax Manual at IHM25278) is that supplied vacation lets will certainly in general not get BPR. Therefore, it appears that the closer the nature of business to a conventional resort in regards to solutions provided, the much better the possibility of an effective BPR case.

Article Written by :

Martin J Craighan

Director of Salford Tax Specialists Ltd

30.12.2025 – Salford, England.

All right reserved.