The battle over whether or not holiday home lets should be subject to inheritance tax continues, as one company in Cornwall plans to appeal against a ruling that could affect thousands of people whose relatives let holiday homes.

Around 65,000 property owners are thought to be affected by the decision, which stipulates such holiday homes should not be considered a business for tax purposes. As such, a considerable majority of those who let their holiday homes will not be eligible for business property relief.
This latest ruling came after a HMRC appeal against a decision by a tribunal last year, which ruled that a certain Nicolette Pawson and her family would be able to claim up to the full amount on inheritance tax.

However, last week’s hearing ruled that only holiday homes providing a ‘substantial amount of services’ would be eligible for the relief.
Chartered accountants Francis Clark have decided to continue the fight against the ruling through the Court of Appeal. They say there needs to be a clear dividing line between what constitutes a ‘substantial amount of services’, and what does not.
Inheritance tax

As it stands, holiday lets not considered to provide a ‘substantial amount of services’ would form part of the owner’s assets upon death. A levy of 40% is charged on assets over £325,000, a figure which is likely to stay the same until at least 2015. The tax is not paid by the relative directly, but taken out of the deceased’s estate.

Changes to this area of inheritance tax will no doubt be of great interest to many of those who use our holiday home insurance products