In The Personal Representatives of Grace Joyce Graham (deceased) v HMRC [2018] TC06536 the First Tier tribunal (FTT) agreed that Business Property Relief (BPR) applied to a holiday lettings business; the level of services provided were just enough for it to fall on the “mainly non-investment” side of the line.

Business Property Relief (BPR):

  • Provides relief from Inheritance Tax (IHT) on the transfer of relevant business assets at a rate of 50% or 100%.
  • BPR is not available if the business is one of "wholly or mainly" making or holding investments or dealing in securities, stocks or shares, or land or buildings.

Mrs Grace ran a business near St Mary’s on the Isles of Scilly comprising four self-contained self-catering flats or cottages which were part of the farmhouse “Carnwethers” where she lived.

  • Mrs Graham and her husband had renovated Carnwethers in the 1970’s and run a B&B, a hotel and then Furnished holiday let accommodation from the property. After Mr Graham died in 2007 their daughter Louise began to help with the running of the business.
  • Leisure facilities were provided such as a swimming pool, sauna, games room, croquet lawn, bicycles for hire, and a barbeque area, as well as a laundry room.
  • On arrival a welcome pack and basic supplies were provided in the flats/cottages, guests were given refreshments, and they were told to help themselves to produce from the gardens such as herbs and tomatoes.
  • Louise Graham made particular efforts to help and advise guests. Occasionally she had been called upon for emergencies in the middle of the night and provided a taxi service to rescue guests lost on the island. 
  • In season the pool was skimmed twice a day with other cleaning of facilities and gardening taking place on daily and weekly rotas adding up to about 200 hours per week including changeovers.
  • On Mrs Graham’s death her personal representatives (PR's) made a claim for BPR in respect of Carnwethers. By this time gross income of the business was £74,000 per year.
  • HMRC said that whilst she had been operating a business it was one mainly in the holding of an investment. The PR's appealed.

The FTT allowed the appeal the judge stating:

  • Whether a business is wholly or mainly one of making or holding investments is a two-part test:
    • First each part must be looked at separately, then the whole can be considered, asking “would an intelligent businessman view the business as mainly the holding of investments?”.
    • If at the first stage an element is identified which has a substantial investment component, the next question is do the other non-investment components outweigh it?
  • Overall Carnwethers was an exceptional case which just fell on the “non-mainly-investment” side of the line. The deciding factors were the pool, the sauna, the bikes, and in particular "the personal care lavished upon guests by Louise Graham".


IHT: Business Property Relief (subscriber guide)  

Furnished Holiday Letting 

The Personal Representatives of Grace Joyce Graham (deceased) v HMRC [2018] TC06536 



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