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Inheritance Tax Update

View profile for Stephanie Brobbey
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The Treasury have announced, contrary to previous Budget statements, that the Nil Rate Band of £325,000 (the current amount of an estate that can be inherited tax free) is to remain the same until 2019 and not increase in line with inflation. It has been widely reported in the press that over £1 billion is expected to be generated in annual tax revenue that is due to fund care for the elderly. Until now, relatively few estates are required to pay Inheritance Tax, however the impact of this decision will mean that by 2019, approximately 5,000 more estates will be caught by it.

Given that this change is more likely to impact a greater number of estates, it is now an important time to consider how best to plan your estate to reduce the effect of an Inheritance Tax liability that may arise on your death.

Business Property Relief denied on a holiday home let

The Upper Tier Tribunal recently delivered the important judgment of HM Revenue & Customs v The Personal Representatives of Nicolette Pawson, which denied the entitlement of Business Property Relief (“BPR”), a 100% relief from Inheritance Tax, from the estate of a part-owner of a holiday home.

Facts of the case

Nicolette Pawson owned a 25% share in a bungalow in Suffolk, let out as furnished holiday accommodation by her and her three children. Ms Pawson died in 2006 and HMRC was determining whether Inheritance Tax was due on her share of the property.

By way of background, according to the Inheritance Tax legislation, Business Property Relief will not apply if the “relevant business property” consists “wholly or mainly of…making or holding investments”.

The Upper Tier Tribunal decided that in this case, although the bungalow had operated as a business for gain (even if it was not always profitable), the services that were provided were of a relatively standard nature and were not outside the scope of a normal property letting business (which involves insuring the property, collecting the rent, maintaining the property, seeking future customers etc.).

The judge concluded that given that there was no clear evidence that Nicolette Pawson had any “substantial involvement” in managing the property, it was held to be an investment and therefore her interest in the holiday home was not eligible for Business Property Relief.


This decision may trigger owners of furnished holiday homes to consider whether changes should be made to the operation of their own businesses. Tasks that are generally thought to relate to trading activity, would involve providing welcome packs for customers, cleaning services, on-call services, refreshment facilities and so on.

In order for a business to be considered a genuine trading business for HMRC’s strict standards (whereby BPR may be available), providing facilities such as the ones mentioned above, must be substantial. If HMRC suspect that your letting business is not a genuine one for BPR purposes, they will be entitled to investigate further and the above decision in Pawson may be applied.

This article was written by Stephanie Brobbey, Solicitor, with assistance from Amantha Seneviratne.

This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 020 7404 0606 and ask for your usual Goodman Derrick contact.