When someone dies while they own a share in a private trading business, the deceased’s share of the business will qualify for 100% business relief from inheritance tax (IHT).
This business relief doesn’t automatically apply where the business involves letting holiday accommodation. Although holiday lets are treated as a trade for many tax reliefs, such as capital allowances, pension contributions and some capital gains tax reliefs, they are not regarded as a trade for IHT purposes.
This point was recently reinforced in a case where the deceased held a share in eleven holiday cottages and flats. Although substantial services were provided to holiday- makers, the court decided that the properties were held mainly to obtain rental income. It followed that they were passive investments rather than an active trade, so the share of the business didn’t qualify for IHT business relief.
If you run a holiday lettings business we should review your IHT planning in the light of this case.
