End of road in Pawson holiday lets relief case

The long-running Pawson case, which centred on tax relief on furnished holiday lets (FHL), has finally come to a conclusion with the executors of the late Mrs Pawson failing to succeed in their applications for leave to appeal against the judgment of the Upper Tax Tribunal (UTT) earlier this year, reports chartered accountants Harris & Co.

Lord Justice Briggs’s decision to refuse to allow leave to appeal to the Court of Appeal in the case of HMRC v Pawson, which was made on 2 October 2013, marks the end of any options for challenging the HMRC’s original decision.

The case concerned a claim for inheritance tax business property relief (BPR) in relation to a FHL. The First Tier Tribunal (FTT) had originally allowed the relief in respect of Mrs Pawson’s share in the family holiday letting cottage. This was on the basis that sufficient services were performed over and above those expected from a normal letting business to conclude that the business was not one of mainly holding an investment.

However, this decision was overturned by Mr Justice Henderson in the UTT in February of this year, where the tribunal decided that the level of activities, separate from the letting of the property, were insufficient to distinguish it from an actively managed investment business.

Leave to appeal to the Court of Appeal had already been denied by the UTT and by the Court of Appeal in response to a written application, so this oral application was the final chance.

Catherine Desmond, partner in the landed estates group at Saffery Champness, said: ‘There is a strong message here for owners of holiday homes who may have been hoping that they will qualify for BPR and therefore relief from payment of inheritance tax – they must look at their individual businesses very carefully.

During the tribunal appeals, it was accepted that there was a spectrum of levels of activity on which a particular business had to be placed, although no specific guidance was given as to how this would impact on FHLs.

‘One would hope that owners of holiday letting businesses who carry on a significant level of activities which enhance the holiday experience of their customers (as distinct from the letting itself) may still qualify for relief – however at this point in time it is far from clear what a qualifying business would look like in the eyes of HMRC,’ Desmond said.