Keep holiday lets in farm business to claim property relief

Farmers with standard holiday lets should avoid separating them out from the main farming operations if they want to claim business property relief (BPR).

A recent case has underlined how holiday lets are unlikely to qualify for BPR unless they are offering substantial services to their customers, or are part of a wider farming business with diversified operations.

To qualify for BPR, holiday lets must be wholly or mainly involved in trading (non-investment) activities, rather than non-trading (investment) ones.

See also: Take steps to protect holiday cottages from IHT

Effectively, this means the owner should not be passively holding the asset as an investment, but should instead be actively using it for business purposes.

The case of Anne Green last month shows how important it is to understand this.

Mrs Green had a Norfolk property with five self-catering holiday lets within it, on which she claimed BPR.

HMRC took her to tribunal because it believed she was incorrectly claiming BPR. 

The tribunal ruled in favour of HMRC and found Mrs Green’s trading activities (deemed the provision of electricity, a welcome pack, linen, towels, furniture, wi-fi and cleaning) were not enough to outweigh her non-trading activities (deemed to include marketing, pricing, taking bookings, insurance, and repairs and maintenance).

Catherine Desmond, partner at accountant Smith Cooper, said HMRC was looking more at BPR and that unless owners were offering significant holiday extras that demonstrated trading activities, it was difficult to qualify.

“This is yet another nail in the coffin for fairly standard holiday lets,” said Ms Desmond.

The tribunal had, however, pointed to another important case, she added, where holiday lets on a diverse Scottish farming estate qualified for BPR because they were deemed to be part of the wider farming business.

“If [farmers] want any hope of claiming BPR, [holiday lets] are best kept in wider farming operations,” she said.

Family members who exclusively run the farm’s holiday lets could be included in farming partnerships to ensure the lets were kept in the main farming business.

Are you, like many other farms, missing out on tax claims for R&D?

If you’re a limited company, you could be eligible for tax credits if you’re carrying out R&D on your farm. For more information and to find out if you’re eligible visit our R&D tax credits page.

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