Mark McLaughlin looks at the inheritance tax business property relief status of furnished holiday accommodation.
Business property relief (BPR) is a valuable inheritance tax (IHT) relief for business owners, which is available where certain conditions are satisfied.
The relief applies to ‘relevant business property’, including a business or interest in a business, and unquoted shares in a company. The BPR rate potentially applicable to those categories is 100% (although from 6 April 2026, the 100% relief currently available without any limit will only apply to the first £1m of assets, with a 50% rate applying above that limit).
Holiday lettings
However, there is an exclusion from BPR (subject to limited exceptions) if the business, or the business carried on by the company, consists wholly or mainly of ‘making or holding investments’ (IHTA 1984, s 105(3)). This restriction can cause difficulties for certain categories of business, including furnished holiday accommodation, i.e., whether that activity amounts to a business; and if so, whether the business is mainly one of ‘holding investments’. This issue has caused several disputes 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 operated as a holiday lettings business. It was held that the business carried on was mainly that of holding the property as an investment. The services provided to guests were not sufficient to prevent the business from being mainly investment in nature. Taxpayers have been unsuccessful in several subsequent BPR claims for holiday accommodation, 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).
However, in PRs of Graham v HMRC [2018] UKFTT 306 (TC), a BPR claim was allowed. The individual’s business involved four furnished self-catering flats or cottages. The First-tier Tribunal (FTT) found that some provisions and activities in the business were not generally provided at smaller hotels (e.g., swimming pool, sauna, bikes to hire, games, marmalade and other provisions, and the welcoming of guests). Other services or activities were normally provided at a hotel or guesthouse but not there (e.g., meals, a bar, the daily making of beds, and cleaning or tidying). Overall, the business ‘just’ fell on the ‘not-mainly-investment’ side of the line.
Normal service resumed
The Graham case was subsequently considered in Executors of Tanner v HMRC [2025] UKFTT 328 (TC). Unfortunately for the taxpayer in Tanner, a holiday accommodation business comprising five active self-catering holiday letting units, when viewed as a whole, was held to be mainly one of holding investments, such that BPR was not available.
The FTT judge referred to the judge’s comment in Graham that: “…it will only be the exceptional letting business which falls on the non-investment side of the line.” The FTT in Tanner stated: “However, in context we consider that it is clear that the judge in that decision meant that it will be exceptional for a letting business to fall on the non-investment side of the line, rather than that a letting business which is exceptional will always fall on that side of the line.” On that basis, taxpayers face an uphill battle to secure BPR on holiday lettings.
Practical tip
HMRC’s view (in its Inheritance Tax Manual at IHM25278) is that furnished holiday lets will in general not qualify for BPR. Thus, it seems that the closer the nature of the business to a traditional hotel in terms of services offered, the better the chance of a successful BPR claim.
