The recent case of Graham v RCC [2018] UKFT 306 (TC) has resulted in a promising outcome regarding business property relief (BPR) for taxpayers that have property businesses. The taxpayer in this case successfully argued her business was more of a family-run hotel rather than a mere holiday letting, thereby qualifying for this important Inheritance Tax relief. The additional services she offered were the key in distinguishing the business from being classed as investment property.
While a business that holds land mainly for the purpose of receiving income (i.e. buy-to-let flats and houses) is excluded from claiming BPR, the decision in Graham acknowledges that the assessment of property businesses should fall on a wide spectrum. All “add on” services are to be taken into account and the key consideration appears to be looking at the business as a whole. This test is important to keep in mind when asking the question “does my property qualify for tax relief?” and when seeking relevant tax advice.
A word of caution here. A business may still be classed as an investment and will fail the test for BPR even if some property management activities are undertaken. As Edinburgh based solicitors we see many examples of such limited management activity in the Edinburgh property market. In Graham it was acknowledged that only exceptional lettings would qualify as non-investment businesses. The test to consider is the differences between a tenancy and a hotel, and what falls in between. What is clear is that the services offered must push you firmly towards the hotel end of the spectrum in order to argue your right to BPR.
Individuals that have a property portfolio may be encouraged by the trajectory of the Graham case for key tax exemptions, particularly those who offer additional services above and beyond mere property management. There has been an appeal to the Upper Tribunal in the similar case of Vigne v HMRC and we await the outcome of the appeal to see if it may offer further weight in favour of property business exceptions for BPR.
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