High Court rules against home owners

1st February, 2013

A case in the high court has been resolved in favour of HM Revenue and Customs whereby a judge had decided that a “large bungalow” on the Suffolk coast would be classed as an “investment” and not a “business”. The implications are that it will now be subject to inheritance tax of up to 40 per cent should it be worth more than £325,000. An HMRC spokesman said: “We are satisfied with the judgment, which confirms our interpretation of the law.”

Up until now holiday lettings were regarded as businesses which mean they were exempt from the tax. Following a review in 2008, the revenue changed its interpretation of the law and found that a furnished property must offer services to qualify as businesses. In this case the revenue challenged the claim that the house was a business and the Lower Tribunal, which rules on financial cases, found in favour of the Pawson estate in 2011. The revenue successfully persuaded High Court judges sitting on the Upper Tribunal to overturn the ruling in a decision announced last night.

The revenue said the property had low income - between £4,342 and £6,072 it was also run at a loss for a period of several years. However its income increased to £16,589 and a profit of £4,449 in the year that one of the owners died but it accepted that the previous losses were due to costs of home improvements. The family has one month to lodge an appeal.

But even before the ruling Mr Endacott said the success of a claim may well depend upon the extent to which the owners - or their agents - interact with guests. "In other words," he said "is a holiday being provided or just accommodation."

Other possible services that could be offered, he says, are arranging for newspaper delivery or temporary membership of a sports club. He added: "It is understood that the supply of a landline telephone and a television is also thought important by HMRC."

 

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